Continued reforms needed to improve Malaysia’s business environment, says OECD

KUALA LUMPUR (Aug 12): While the Malaysian economy is on the road to recovery from Covid-19, the Organisation for Economic Co-operation and Development (OECD) said risks still remain from the ongoing crisis, as continued reforms are required to improve the business environment further and accelerate digitalisation.

According to OECD’s third Economic Survey of Malaysia, high unemployment amid the pandemic and weak productivity growth have posed challenges, amid the current crisis.

In the short-term, accelerating the vaccination programme is crucial, it said, adding that policy support for people and firms should continue until the recovery is well-established, following which the country should resume its pre-pandemic efforts to boost productivity by easing regulatory and administrative burdens and accelerating firms’ adoption of digital technologies.

It said a fiscal consolidation strategy will be vital to reduce public debt and prepare for growing health and economic costs from Malaysia’s ageing population.

“Malaysia is a business-friendly country which attracts large flows of foreign direct investment and is well-integrated in global value chains.

“Nonetheless, further reforms to ease regulation and expand the digital economy will be essential to drive growth in the post-pandemic world and to ensure Malaysia fully benefits from today’s digital opportunities,” OECD Secretary-General Mathias Cormann said.

Overall, the survey projects Malaysia’s gross domestic product (GDP) growth to rebound to 4.3% in 2021 and 6.1% in 2022, following the droop in economic activity of 5.6% in 2020.

This forecast is backed by the rebound in sales of electronic and health-related goods, and policy support propping up domestic demand.

Meanwhile, it said persisting high unemployment underscores the need to improve social protection and policy support for those not adequately covered, including many independent employees working for online platforms, and the micro-, small-, and medium-sized businesses that account for a significant part of Malaysia’s economy.

OECD noted that the country undertook a series of reforms to improve the business environment, including by streamlining regulations and administrative burdens for businesses, and establishing competition authorities.

“While Malaysia now ranks well compared to its Southeast Asian peers, there is room to reduce barriers to competition further, particularly in the energy and transport sectors, professional services and retail, where the OECD’s Product Market Regulation indicators show that regulations and procedures remain restrictive relative to OECD countries,” it said.

The survey also recommends accelerating Malaysia’s digital transformation by improving digital infrastructure, developing workers’ Internet skills and encouraging small firms — particularly older ones — to adopt new technologies that can stimulate innovation.

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