11MP propels Malaysia towards high-income nation status

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The 11MP emphasises “capital economy” and “people’s economy”.The 11MP emphasises “capital economy” and “people’s economy”.

Prime Minister Dato’ Sri Najib Razak (pic) yesterday tabled the 11th Malaysia Plan 11MP (2016-2020), the last phase of the country’s five-year development plans as it reaches towards the finishing line of becoming a developed nation by 2020.

PM Dato' Sri Najib_Razak (1)Among the key macro goals in the 11MP to propel the nation towards high-income status:

  • Real GDP growth of 5% to 6% per annum [10MP: target 6.0%, actual estimated 5.3%]
  • GNI per capita to reach USD15,690 by 2020 [2014: USD10,426]
  • Average monthly household income to increase to RM10,540 by 2020 [2014: RM6,141]
  • Labour productivity to increase to RM92,300 by 2020 [2015e: RM77,100]

The 11MP will focus on “capital economy” and “people’s economy”, first mentioned in Budget 2015. “Capital economy” refers to GDP growth, big businesses, large investment projects and financial markets, while the “people’s economy” refers to jobs, small businesses, cost of living, family well-being and social inclusion. Six strategic thrusts and six game-changers have been identified to promote development in these areas (See table).

Development expenditure is estimated to come in at a total of RM260bn in 11MP (10MP: RM230bn).

In line with the goals of fiscal consolidation, the government expects to narrow the fiscal deficit to 0.6% by 2020 through continued prudent spending and further diversification of the revenue base. As such, the Federal Government’s total debt is expected to decline to below 45% of GDP by 2020.

11th Msian plan game changers 2

What the economists think

Jarratt MaCIMB Investment Bank economist Jarratt Ma (pic) says there were no major surprises and the 11MP was largely in line with expectations.

“We expect the plan to be growth supportive. We are encouraged by the plan’s multi-pronged approach to raise income levels as well as reduce income inequality. The focus on fiscal discipline to strengthen the country’s public finances as well as achieve more equitable and inclusive growth is welcomed.”

“We believe a key area that needs greater scrutiny under the Malaysia National Development Strategy (MyNDS) is better budget management, in particular, better planning and greater emphasis on the effectiveness of budget expenditure. As sizeable funds and grants for various initiatives and R&D purposes are set aside for the next five years, there should be more vigorous audit checks on actual expenditure against allocations to ensure no misuse or wastage of funds, in our view.”

Ma notes that the national growth targets have for the first time included household income, the Malaysian Wellbeing Index (MWI), on top of the GDP growth and per capita income figures. “We are encouraged by the more holistic approach to development, which will put a focus on issues related to income inequality, affordable housing, and cost of living among others.”

AllianceDBS Research economist Manokaran Mottain says that, overall, the 11MP’s broad strategy is in line with the economic reality. “We think that the Plan is the right direction to propel Malaysia towards a high-income nation status. The success of 11MP will lie on the effectiveness on the execution of the policies across the board.”

He says the key to achieving the high-income nation status is dependent on Malaysia’s economic growth performance and AllianceDBS believe that the annual growth rate of around 5% to 6% per annum is within reach given the current growth trajectory.

“Malaysia’s economic fundamentals are intact and the medium-term inflationary outlook appears to be steady,” he says.

“The government’s commitment to fiscal prudence would be a positive to the overall economy. The government would need ample fiscal space (budget surplus or at least a low budget deficit) during economic downturns to stabilise the domestic macro environment,” he adds.

Manokaran believes the steady income stream from GST and responsible budget spending (higher allocation for developmental projects, trimming excesses in operational expenditures) are realistic steps to lower the fiscal deficit in the coming years.

“To that end, we do not expect the government to embark on accelerated fiscal spending. The private sector will continue to lead overall investments and consumption growth in the coming years,” he opines.

UOB Global Economics and Markets Research economist Ho Woei Chen says the average annual GDP growth rate of 5%-6% over 2016-2020 is a realistic target given that the Malaysian economy has achieved an average growth of around 5.3% during the 10th MP.

“The 11th MP emphasises productivity gains in order to ensure sustainable and inclusive growth. Innovation will be a key growth driver in the next five years,” says Ho.

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