PUTRAJAYA: Malaysia has enjoyed five decades of rapid and inclusive economic growth, bringing the country within reach of high-income status, said a chief economist.
Organisation for Economic Cooperation and Development (OECD) Economics Department director Dr Luiz de Mello said the economy has achieved an impressive average yearly growth of over six per cent since the 1960s.
He added that Malaysia has been ahead of regional peers in terms of per capita incomes and has been able to consolidate this lead.
Luiz said while incomes were only one-third of the World Bank's threshold for high-income countries in 1989, they are set to surpass that threshold by 2028.
"Significant policy reforms in the 1980s allowed Malaysia to attract large inflows of foreign direct investment, turning it into a global chips and electronics manufacturer.
"Growth and productivity could be strengthened further by easing restrictive regulations and creating a more level playing field between state-owned enterprises and private firms.
"This would bring particular benefits for services and for small and medium enterprises (SMEs)," he said in a presentation at the launch of the 2024 OECD Economic Survey of Malaysia today.
Luiz noted that with higher incomes, however, surging demands for better public services require different policies from those that were successful in the past.
He said the public sector will have to deliver more and become more effective, which calls for improved economic governance.
He also emphasised that filling the substantial gaps in the current social protection system requires increased expenditure.
On Malaysia's growth, Luiz said the country's growth is accelerating, mostly driven by expanding domestic demand.
He added that exports are set to rebound amid stronger external demand, and inflation has fallen below historical averages but is expected to rise as energy subsidies are withdrawn.
"The economy has shown resilience in the face of shocks, including the pandemic, supply chain bottlenecks, and the economic implications of Russia's war of aggression against Ukraine.
"Growth is projected to reach 4.9 per cent in 2024 and then 4.7 per cent in 2025.
"Buoyant domestic demand and new opportunities in technology-intensive sectors and the expected rebound in exports will encourage private investment despite higher financing costs," he said.
On monetary policy, Luiz said the monetary authorities started a tightening cycle in 2022 as inflation approached five per cent, driven by global energy prices and currency depreciation.
"With inflation near its two per cent long-term average, the current monetary policy stance seems adequate and provides room to accommodate a temporary increase in inflation as energy subsidies are withdrawn.
"At the same time, monetary authorities should stand ready to raise rates to counter possible second-round effects from higher energy prices," he noted.