Malaysia 2016 OECD Economic Survey fostering inclusive productivity

1. FIRST OECD ECONOMIC
ASSESSMENT OF MALAYSIA 2016
Fostering inclusive productivity
Putrajaya, 11 November 2016
@OECD
@OECDeconomy
http://www.oecd.org/eco/surveys/economic-survey-malaysia.htm

2. 2
Growth has been resilient
Source: OECD Economic Outlook database and national statistical offices.
Note: ASEAN-5 is the weighted average growth rate of Indonesia, Malaysia, Philippines, Thailand and Singapore.
GDP growth

3. Incomes are rising
3
Note: GDP per capita is computed in real USD PPP terms; ASEAN excludes Myanmar; 1970-2011 data are from the Penn World
Tables, 2012-14 data from the World Development Indicator database.
Source: World Bank, World Development Indicators; Penn World Tables 8.1 database and Economic Planning Unit, Malaysia.
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
1970 1975 1980 1985 1990 1995 2000 2005 2010
%%
GDP per capita (percent of OECD average)
Malaysia Korea Thailand Philippines ASEAN

4. 4
Income inequality has declined
Source: Department of Statistics, Malaysia.

5. 5
Well-being can still be raised
Source: OECD calculations based on data provided by OECD, Better Life Index, national sources and UNESCO, UIS.stat (database).
1. Indicators are normalised to range between 10 (best) and 0 (worst) .
2. OECD higher/lower income countries are countries belonging to the top/bottom 30% of the OECD member countries.
0
1
2
3
4
5
6
7
8
9
Income
Jobs
Community
Education
EnvironmentHealth
Life satisfaction
Safety
Work-life balance
Better-life index, main dimensions
Malaysia Higher-income OECD Lower-income OECD

6. 6
Boosting productivity growth is key
Source: OECD calculations based on data provided by national statistical offices and OECD, Productivity Statistics.
Annual labour productivity growth
0
2
4
6
8
10
12
0
2
4
6
8
10
12
China Indonesia Thailand Korea Malaysia Singapore Turkey OECD
%%
2001-2005 2006-2010 2011-2015

7. 7
The bond market is relatively developed
Source: Bank Negara Malaysia; Asian Bond online database.
0
50
100
150
200
250
0
50
100
150
200
250
Indonesia Philippines China Thailand Singapore Malaysia Korea Japan
%ofGDP%ofGDP Sizeofdomesticbondmarkets(asofDecember31, 2015)
Corporate Government

8. 8
Household debt is relatively high
Note: Data reflects gross debt as a share of GDP at June 2015, except for Malaysia (2015 average) and China (as at December 2015).
Household debt
Source: Bank Negara Malaysia Annual Report 2015; Standard Chartered Bank (2016), Asia Leverage: After the Boom.

9. 9
Tax revenues are low and declining
Source: OECD (2015), Revenue Statistics in Asian Countries 2015: Trends in Indonesia, Malaysia and the Philippines
(for the years 1990-2013); MOF (2015), Economic Report 2015 -2016 (for the years 2014-16).
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
% of GDP% of GDP
OECD average Malaysia

10. Boosting productivity
10

11. Student performance can be improved
11
 Follow through with the revised school curricula based on international
benchmarking and improvements to teacher evaluation, training and upskilling.
 Monitor the impact of basic education reform implementation on student access
and equality.
Percentage of low performers in mathematics by socio-economic quartile
Source: OECD (2016), Low-Performing Students: Why They Fall Behind and How to Help Them Succeed.
0
10
20
30
40
50
60
70
80
90
0
10
20
30
40
50
60
70
80
90
Korea Singapore Viet Nam Indonesia OECD average Thailand Turkey Malaysia
%%
Bottom quarter
Top quarter

12. New business entry is low
12
Source: World Bank, World Development Indicators.
 Streamline firm registration and introduce zero licensing procedures
in services and industry.
Number of new limited liability corporations per 1,000 people aged 15-64
0
1
2
3
4
5
6
7
8
9
10
11
0
1
2
3
4
5
6
7
8
9
10
11
2006 2007 2008 2009 2010 2011 2012 2013 2014
Malaysia OECD Indonesia Korea Thailand Singapore

13. 13
 Amend insolvency laws to facilitate the rescue of viable firms.
The insolvency regime is inadequate
Note: The gap to frontier is the difference between Malaysia’s score and the score of the best performing country (=100).
Source: World Bank, Doing Business.
Gaps to the frontier
0
20
40
60
80
100
Starting a business
Dealing with construction
permits
Getting electricity
Registering property
Getting credit
Protecting minority investors
Paying taxes
Trading across borders
Enforcing contracts
Resolving insolvency

14. Services trade is still overly restricted
14
Note: The STRI indices take values between 0 and 1
Source: OECD, Services Trade Restrictiveness Index.
The OECD Services Trade Restrictiveness Index (STRI) for Malaysia
 Pursue further trade and investment liberalisation
to boost services sector growth and competition.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Malaysia Average of countries covered by the STRI

15. Public-sector employment is high
15
 Commission an independent review of public sector productivity.
 Regularly evaluate strategic plans and programmes through independent
audits and regulatory impact assessments.
 Expand performance benchmarks to a larger number of officials, with clear
links to rewards, penalties and career progression.
Source: ILO (2016), ILOSTAT database.
0
2
4
6
8
10
12
14
16
18
0
2
4
6
8
10
12
14
16
18
Korea Philippines Japan Thailand Viet Nam Mexico Turkey Chile Malaysia OECD
%% Share of employment in the public sector (2014)

16. Fostering inclusive growth
16

17. 17
Labour participation rates are relatively low
Source: ILO, ILOStat Database; OECD, Labour Force Statistics.
 Promote flexible work arrangements and invest more in early childhood care,
lifelong learning and reskilling.
 Align tertiary and vocational education and training to labour market needs to
continue to reduce skills mismatches.
0
10
20
30
40
50
60
70
80
90
0
10
20
30
40
50
60
70
80
90
Thailand China Singapore OECD Indonesia Malaysia Philippines Korea
%%
Labour force participation as a percent of people at 15-64

18. 18
Spending for social protection is low
Source: OECD, Social Spending Indicator; ADB, Statistical Database System.
 Develop a comprehensive social protection system, including by implementing
an employment insurance scheme.
 Improve social policy consistency, programme targeting and the overall
impact on reducing disadvantage.
Social protection spending as a share of GDP
0
5
10
15
20
25
0
5
10
15
20
25
1997 2002 2007 2012
%%
OECD social expenditure Malaysia social expenditure

19. 19
The consumption tax rate is low
Source: OECD Tax Database; KPMG (2015), 2015 Asia Pacific Indirect Tax Guide.
 Undertake an independent review of expenditure and revenue needs.
 Over the medium term, consider gradually reducing exemptions and then
raising the rate of the goods and services tax, and increasing the
progressivity of income tax.
VAT/GST tax rate

20. 20
Pension replacement rates are low
Note: The data are for 2012 for Malaysia and for 2014 for OECD countries. The source publications assume investment returns of
3.5% per annum for Malaysia, whereas a 3% per annum return was assumed for OECD countries.
Source: OECD (2013), Pensions at a Glance Asia-Pacific 2013; OECD (2015), Pensions at a Glance 2015.
 Increase pension access ages in line with improvements in healthy life
expectancy and reduce exemptions for early withdrawal.
 Enrol future public employees in the defined contribution scheme covering
private sector employees.
0
20
40
60
80
100
120
0
20
40
60
80
100
120
SouthAfrica
Indonesia
Mexico
UnitedKingdom
Chile
Japan
Malaysia
Ireland
NewZealand
UnitedStates
Korea
Switzerland
Canada
Germany
Poland
Sweden
Slovenia
Australia
Estonia
Norway
Belgium
OECD
Finland
CzechRepublic
SaudiArabia
Denmark
France
Israel
EU28
Greece
Brazil
Iceland
Italy
China
Slovakia
Russia
Argentina
Luxembourg
Portugal
Spain
Hungary
Austria
Netherlands
Turkey
India
%% Net replacement rate

21. 21
Regional inequality is still high
Source: Department of Statistics, Malaysia.
 Improve social services, transport, and broadband connectivity in remote areas.

22. 22
Key recommendations

23. 23
Resilient growth
 Continue fiscal consolidation to provide a buffer should conditions
deteriorate
 Undertake an independent review of expenditure and revenue needs
 Over the medium term, consider:
i) Gradually reducing exemptions and then raising GST
ii) Increasing the progressivity of income tax
 Increase the use of market mechanisms and stricter environmental
standards to strengthen green growth strategies

24. 24
Boosting productivity
 Follow through with the revised school curricula based on
international benchmarking and improvements to teacher evaluation,
training and upskilling
 Increase the collaboration of tertiary institutions with industry to
deliver job-ready graduates, with focus on vocational education and
training
 Commission an independent review of public sector productivity
 Streamline innovation system governance through clear mandates for
the National Science Council and Research Management Agency
 Enhance independence, staffing and financial resources of the
competition regulator
 Amend insolvency laws to facilitate the rescue of viable firms and
introduce out-of-court insolvency procedures
 Expand merger control powers
 Pursue further investment liberalisation to boost the services sector

25. 25
Fostering inclusive growth
 Develop a comprehensive social protection system, including by
implementing an employment insurance scheme
 Promote flexible work arrangements and invest more in early
childhood care, lifelong learning and reskilling
 Increase pension access ages in line with improvements in life
expectancy and reduce exemptions for early withdrawal
 Improve social services, transport and broadband connectivity in
remote rural areas
 Enrol future public employees in the defined contribution scheme
covering private sector employees

26. http://www.oecd.org/eco/surveys/economic-survey-malaysia.htm
For more information
26
@OECDEconomy
@OECD

27. 27
Appendix
Disclaimers:
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without
prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers
and boundaries and to the name of any territory, city or area.

28. OECD projections for 2016-17
28
2015 2016 2017
Real GDP growth 5.0 4.2 4.2
CPI 2.1 2.3 2.5
Headline budget
balance (% of GDP)
-3.2 -3.1 -3.0
Memorandum items
Oil price
(Brent, USD per barrel)
52.4 43.5 45.0
World trade growth
(Volume change)
2.5 2.1 3.2
Source: Ministry of Finance, Malaysia and OECD Economic Outlook database.