FACTOR-driven economic growth has served Malaysia in the past, but it will not be enough to propel the country to become a high-income nation, said Mustapa Mohamed.

“The factor-driven growth in the past has served the country well, to bring us to the cusp of attaining high-income status. However, that is not enough, to carry us past the high- income threshold,” the Minister in the Prime Minister’s Department (Economy) said at the launch of the World Bank’s report today.

This factor-driven growth is becoming more costly to sustain, with every unit of input injected into the economy yielding less GDP (gross domestic product) growth compared to the past,” he added.

Factor-driven growth refers to a country’s competitive advantage based on its factor endowments, such as unskilled labour and natural resources.

Therefore, he said new sources of growth are needed, to ensure that the economy is driven by multi-factor productivity.

“We need to build a workforce for the future, drive digitalisation, and spur productivity improvements, at the sector- and enterprise-levels,” he said.

With this mind, Malaysia has strengthened its resolve in intensifying the digitalisation journey that first began with the Multimedia Super Corridor, with the Rangka Tindakan Ekonomi Digital Malaysia or Malaysia Digital Economy Blueprint, launched by the prime minister last February 19th,” he added.

Addressing poverty and income inequality, is also among the key development agenda for the country, as the Gini coefficient, which measures income inequality has risen from 0.39 in 2016 to 0.41 in 2019.

Income gaps has also widened between regions and states as well as between and within races.

“Thus, it is paramount that we find new ways to address income inequality. While we have done well in the past, there is certainly a lot more that needs to be done.”

In accelerating balanced and inclusive development, regional economic potential will be optimised, and rural areas will be transformed, to bridge the development gap.”

He said strategic collaboration and coordination between the federal government and state governments will be strengthened, to support effective regional development planning and implementation.

The government will also focus on sustainable development.

“While the Government is currently focusing on efforts to overcome the Covid-19 pandemic and revive the country’s economy, we also need to plan for economic development and progress for the long term.”

In this context, the five-year socioeconomic development plan is essential to set a clear strategic direction and place the country’s economy on a stronger foundation.”

He said even before the pandemic, there was a clear need for reform to raise the quality of growth, not just the rate of economic growth. Hence, he said the pandemic has presented opportunities for reform on many fronts.

“The Malaysian economy has successfully transformed from dependence on agriculture and commodity exports, to a more diversified and open economy, with strong links to global value chains.

“At the same time, our open trade and investment environment has facilitated growth that has created employment, and business opportunities.”

Malaysia’s economy recorded steady growth of 6.1% during 1971-2019, despite facing five economic downturns since 1970. Malaysia has been able to rebound quickly after each crisis, due to its economic resilience and competitiveness, Mustapa said.

“Having said that, we must bear in mind that the current economic crisis is one that is different and unprecedented, as it began as a health crisis that has led to major economic consequences worldwide, with no country spared.”

Mustapa said Covid-19 has caused an economic shock, which is the worst economic downturn since the Great Depression.

“As we aspire to join the ranks of the world’s high-income and developed economies, Malaysia needs to be able to compete at the global stage,” he said.

He said the 12th Malaysia Plan will entail new ways of doing things, instead of just being an extension to the preceding plans.

“The challenge is how to do things differently, creatively and innovatively. We need to learn from our shortcomings, and how we can do things better, as well as take into account the best practices in other countries,” he said.

The plan aims to build a prosperous, inclusive and sustainable Malaysia, he said.

“It sets out our agenda of reform in several key areas: strengthening macroeconomic fundamentals and resilience, rejuvenating the economy to restore growth momentum, propelling potential growth drivers for a high-tech nation, developing future talent, pursuing sustainable and green growth, investing in strategic infrastructure, boosting digitalisation, improving inclusion and addressing regional imbalances, raising the wellbeing and unity of the rakyat, and strengthening the public sector to ensure enhanced and more effective public service delivery,” he said.

The World Bank’s flagship report, Aiming High – Navigating the Next Stage of Malaysia’s Development, said Malaysia could transition into a high-income economy between the years 2024 to 2028. – March 16, 2021.