KUALA LUMPUR (April 8): There is no reason for Malaysia to not ascend to high-income status by 2030, according to Asean+3 Macroeconomic Research Office (Amro) chief economist Khor Hoe Ee, citing the recent surge in foreign investment inflows into the country, which is expected to boost economic growth in years to come.
Khor underlined that Malaysia charted surges in foreign direct investment in 2021 and 2022, which will aid economic growth when realised.
“So, we are optimistic that as long as they (Malaysia) maintain fiscal and monetary discipline, new inflows of investments from abroad will be able to help them raise the growth rate and reach the high-income level that they aspire to,” Khor said during a press conference for the launch of the Asean+3 Regional Economic Outlook (Areo) 2024 report on Monday.
“Malaysia has a target to break through the middle-income trap and become a high-income economy by the end of the decade, and there’s no reason why it cannot do that,” he added.
According to the Malaysian Investment Development Authority, Malaysia posted a record-high FDI of RM208.6 billion in 2021, followed by RM163.3 billion in 2022 and RM125.7 billion in 2023.
Meanwhile, Amro group head and principal economist Allen Ng noted that Malaysia’s current nominal gross domestic product (GDP) per capita stands between "US$11,000 and US$12,000" — a gap away from the "US$13,000" (RM61,825) high-income economy benchmark set by the World Bank.
“So, it's very reasonable for us to expect Malaysia to be able to make that leap within this decade,” he said.
In 2023, Malaysia’s GDP per capita stood at US$11,141, while the World Bank’s high-income threshold was set at US$13,845.
“But, I think the more important thing that we want to highlight in our report is that Malaysia, like many other regional countries, continues to face very significant structural headwinds," Ng said.
"Crossing that line to become high-income doesn’t imply that you are a developed economy. You need to do a lot more to manage some of the structural headwinds,” he added.
Long-term challenges to growth
Like other countries in the Asean region, Ng said that Malaysia is not exempt from common long-term challenges to economic prospects, noting that there is a need to manage its ageing demographic, productivity growth and the skills of its workforce.
According to the Areo 2024 report, Malaysia is expected to see a higher rise in the average age of its labour force among Asean+3 — Asean plus China, Japan and South Korea — peers, with the average working age expected to rise by four years to 40 by 2050 from 36 in 2021.
This is expected to have an inherent negative impact on productivity, the report said.
In tandem, the report noted that Malaysia’s public healthcare system’s one-size-fits-all fee structure and reliance on a single source of tax financing have contributed to prolonged underinvestment in health and the health budget that no longer matches the reality of the country's changing demographics.
Coupled with a fertility rate of 1.8, the report said Malaysia is likely to rely on net migration as a driver of population change in the future.