Ingredients for Malaysia's Economic Prosperity

IMF News, June 24, 2019

Source details

Speech delivered by Christine Lagarde, Managing Director, International Monetary Fund, University of Malaya – Kuala Lumpur, June 24, 2019.
Theme: use the metaphor of Assam Laksa — a blend of ingredients — to examine the factors behind Malaysia’s past success and the mix needed for inclusive, sustainable long-term growth.
IMF objective: develop an integrated economic policy approach drawing on Malaysia’s experience to improve IMF policy advice on complex interactions between capital flows, monetary and exchange rate policies, and macroprudential measures.

Since 2000, Malaysia’s real annual GDP growth averaged 5.5 percent.
Real income per capita grew by nearly 6 percent per year.
Average life expectancy has increased by almost 3 years.[1]
Drivers of success:
- Economic diversification and strengthened financial sector.
- Global manufacturing hub producing computers, cell phone parts, semiconductors, and more.
- Innovation cluster: Bayan Lepas Free Industrial Zone (“Silicon Valley of the East”).
- Growing start-up ecosystem over the last five years (digital media, web-based financial services, online professional recruitment).
- Education focus: universal access to primary education established in 2003.
- Total government spending on education approached 5 percent of GDP — “significantly higher than most other countries in the region.”[2]
- Spending on higher education now matches many OECD countries.
Outcome: a more inclusive, resilient Malaysia that withstood the 2008 global financial crisis.

Overall goal emphasized: boosting productivity growth is essential for Malaysia to reach high-income status in the next decade; productivity has stagnated in recent years.
Christine Lagarde highlights three primary ingredients to raise productivity:

a) Improving Governance and Tackling Corruption

Corruption undermines investor attraction and job creation; global youth survey found corruption identified as the most pressing concern.[3]
Recent institutional steps:
2018: The National Center for Governance Integrity and Anti-Corruption established; proposed procurement improvements and conflict-of-interest measures.
January (2019 implied): government launched a new anti-corruption plan focused on financial transparency and strengthening oversight.
IMF stance: include improving governance in more Fund engagement; emphasis on implementation — enshrine changes in law and follow through on reform steps.
Policy implication: stronger governance and anti-corruption measures can attract investment and generate jobs.

b) Investing in High-Quality Education

Despite higher education spending, Malaysia ranks below the OECD average in math, reading, and science; regional and socio-economic disparities persist.
Risks: lower-skilled adults face automation threats.
Suggested measures:
Increase funding for lifelong learning and skills retraining programs.
Consider a compulsory education requirement to boost enrollment rates.
Expand online courses and part-time coursework to train students for future jobs.
Improve quality of teaching, with more math and science in curricula at all levels.
Strengthen language skills (English) to facilitate application of new technologies like artificial intelligence.
Expected outcomes: reduce skill mismatches, raise wages, and help Malaysians harness new technologies.

c) Boosting Labor Force Participation of Women

Current situation:
Malaysian women have less access to the labor market and fewer career opportunities compared to neighboring countries.[4]
Women in Malaysia earn about one-third less than men on average; data suggests gap largely due to workplace discrimination.[5]
Positive developments:
Share of women opening bank accounts now outpaces gains in other ASEAN countries.[6]
Since the global financial crisis, female employment has grown faster than male employment.
Government appointments: five female ministers, four female deputy ministers, and the first female deputy prime minister.
Bank Negara Malaysia led by Governor Shamsiah.
New laws: protect women’s jobs during maternity leave and remove gender discrimination.
Budget measures: increase paid family leave and mandate at least 30 percent female representation on boards of government-linked companies.
Labor market preferences and constraints:
Survey: 80 percent of women interested in flexible work arrangements, but only 20 percent had ever used them.
Another survey: nearly 60 percent of working mothers are unable to perform their jobs from home.
IMF estimate and projection:
IMF believes that taken together, these efforts can raise female labor force participation rates to over 56 percent by 2020.
Potential effect: a boost to GDP growth and overall productivity.

No single solution exists; a mix of core ingredients — improved governance, high-quality education, and increased female labor force participation — can deliver inclusive, sustainable growth for Malaysia.
Christine Lagarde emphasizes continued listening and learning during her visit and the IMF’s willingness to engage with Malaysia on these reforms.
Closing metaphor: the shared history and shared future of the nation, likened to the communal and blended nature of laksa.

Source: Speech by Christine Lagarde, “Ingredients for Malaysia’s Economic Prosperity,” University of Malaya, June 24, 2019.