KUALA LUMPUR (Aug 1): Malaysia should retire its five-year plan and focus on coming up with simple, credible, and pro-market rules for growth, a think tank said on Friday.

The five-year plans are a legacy of mid-20th-century, Soviet-style central planning, said the Center for Market Education (CME), even when they are couched with modern buzzwords such as ‘strategic thrusts’, ‘key result areas’, and ‘mission-critical enablers’.

“They still attempt to steer a complex, evolving economy from the top down, as if information about opportunities, costs, and preferences were known in advance and stable for half a decade,” CME said. Those assumptions are “false”, the think tank said.

The comment comes on the heels of the 13th Malaysia Plan presentation in Parliament on Thursday.

Malaysia has evolved from a largely agrarian economy to one of Southeast Asia’s wealthiest since the first five-year plan was introduced in 1965 under then prime minister Tunku Abdul Rahman Putra Al-Haj. But the plans have had their share of hits and misses over the decades.

“When a five-year plan is taken seriously, it cages the economy,” CME said, “when it is applied loosely, it becomes a wish list.”

In both cases, potential corrections that usually come from entrepreneurial trial-and-error in markets are disrupted, the think tank noted. “The result is misallocation, fiscal strain, and slower productivity growth,” it said.

At the top of CME’s recommendations for Malaysia is to adopt a “hard budget constraints and fiscal predictability” with medium-term fiscal framework anchored by “simple rules with clearly defined escape clauses for shocks”.

Malaysia’s sprawling government-linked companies, meanwhile, should be reformed with measures such as divestments, due to their extensive commercial footprint that “crowds out private initiative, blurs policy and profit motives, and entrenches insider advantages”, the think tank said.

Simple, stable tax rules that reward investment are better than complex incentives, CME said, stressing that any incentives, if used, should be automatic and rules-based, such as accelerated depreciation, rather than negotiated, firm-specific deals.

“Malaysia’s growth will not be secured by more elaborate planning documents but by simple, credible, and pro-market rules that unlock entrepreneurial energy,” CME concluded. “Abandoning them is not radical; it is a sober recognition of how modern economies actually learn and advance.”

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