PETALING JAYA: The World Bank predicts Malaysia’s economy to accelerate by 5.8% in 2022 compared with 3.3% estimated for this year, driven by domestic demand on further relaxation of pandemic-related restrictions.

       This is in line with the International Monetary Fund’s forecast that sees the country’s economy expanding by 3.5% this year and 6% in 2022.

       The Malaysian economy bottomed up in the third quarter of this year and contracted by 4.5% year-on-year, due to the implementation of a nationwide lockdown in June and July.

       Despite the pick up in the country’s economic growth next year, World Bank country director for Brunei, Malaysia, the Philippines and Thailand, Ndiame Diop, pointed out that Malaysia must look at the gaps in its existing social protection system and the impact of school closures in exacerbating existing educational disparities.

       “While the re-opening of the economy and the continued support from external demand are expected to facilitate economic recovery next year, the economic shock has exacerbated the hardships that the poor and the vulnerable were already facing before the arrival of Covid-19.

       “Addressing the challenges faced by these groups as well as narrowing the educational disparities will require both immediate and longer-term policy responses,” he said in his welcome remark at the launch of the 25th Malaysia Economic Monitor report titled “Keeping Afloat” yesterday.

       He said in the short term, it is essential that Malaysia’s policy measures are geared towards maintaining financial support for the poor and the vulnerable, ensuring greater inclusivity with social insurance and mitigating further learning losses.

       “Over the long run, Malaysia should take steps to reform its social protection system, making it more broad-based, robust and progressively targeted,” he added.

       The World Bank noted that limited fiscal space remains a key challenge for Malaysia whereby the federal government revenue, which has been declining since 2013, is projected to reach 14.3% of gross domestic product (GDP) in 2022.

       The report also said that rigid operating expenditures, namely emoluments, retirement charges and debt service payments, have grown markedly over time and are expected to take up two-thirds of federal government revenue next year, increasing fiscal rigidity and crowding out discretionary spending.

       “The pandemic has further constrained Malaysia’s already limited fiscal space. Government revenue is expected to decline while rigid expenditures remain high.

       “Therefore, the government should accelerate efforts to rebuild fiscal buffers by collecting more and spending better,” Ndiame said.

       Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed said Malaysia’s fiscal policy has been expansionary over the past two years and will continue to be so to ensure the well-being of Keluarga Malaysia.

       He said that in line with the 12th Malaysia Plan (12MP), the initiatives under Budget 2022 had focused on speeding up recovery, strengthening economic resilience and accelerating reforms.

       Mustapa said the government’s short-term policies are important to drive economic recovery in 2022, and it is equally critical to put medium and longer-term institutional reforms in place to strengthen resilience.

       In his opening speech, he also stressed that the government remains committed to eliminating hardcore poverty by 2025.

       “We acknowledge the inputs from the World Bank team here and globally in sharing best practices in poverty alleviation.

       “I’m also taking note of the World Bank’s report on multidimensional poverty in Malaysia – ‘Improving Measurement and Policies in the 2020s’,” he said.

       He pointed out the government will adopt a holistic and targeted approach to eradicate hardcore poverty in about 50 localities throughout the country next year.

       Mustapa also highlighted the need to address the issue of low wages.

       “In the 12MP, our target is to improve the share of Compensation of Employees to GDP from 37.2% to about 40%. If we want to achieve this target, we need more and more Malaysians working in the skilled category,” he said.