Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily, on March 16, 2016.

 

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KUALA LUMPUR: Monetary or fiscal stimulus measures can’t serve as long-term fixes for an economy, World Bank economist Ulrich Zachau has argued.

Instead, a country needs to be mindful of what he calls “megatrends” affecting the long-term economic prospects: an ageing population, rapid technological changes and climate change.

Zachau, the World Bank’s country director for Southeast Asia, East Asia and Pacific, said Asia’s median population age in 2050 will be 40 years old, a wide chasm from the median of 29 years of age in 2013. The US population will see a relatively smaller jump to 41 years from 37.

This creates a conundrum for economies, he said. On one hand, an older population will result in reduced working-age people. Already, in Thailand, he said the working age population has shrunk by about 10%.

“But if working age increases significantly over time, this will create huge issues for policymakers and pension funds — and it can bring huge implications,” he said.

Zachau said this in his speech “Global Capital Markets Outlook — Emerging Opportunities, Risks, Uncertainties, and Implications to Emerging Markets”, at the Securities Commission Malaysia’s inaugural Global Emerging Markets Programme Conference yesterday.

According to the US Central Intelligence Agency World Factbook, Malaysians’ median age was estimated to be 27.8 years in 2015.

The Department of Statistics Malaysia, meanwhile, showed that between 2010 and 2015, Malaysians’ life expectancy increased. Males were expected to live until they were 72.5 years old in 2015, versus 71.9 years in 2010. Women, meanwhile, had a projected life expectancy of 77.4 years last year, which was 0.8 year higher than in 2010.

An increasing life expectancy rate is one of the effects of improving technology, Zachau said, but one problem that could result from the increasing technological sophistication is more automation. In this manner, he said providing quality education becomes indispensable to develop the workforce.

“But Malaysia has ranked poorly in Pisa (Programme for International Student Assessment), and far, far lower than Korea,” he said. In the 1960s and 1970s, Malaysia and South Korea were neck and neck in terms of economic growth.

Pisa, a triennial international survey, put Malaysia in the 52nd place out of 65 countries in 2012, where students from this country had average scores that were below those of Organisation of Economic Co-operation and Development’s member countries in all categories — mathematics, reading, and science.

Meanwhile, Zachau said East Asia contributed to the biggest carbon footprint. Climate change in Malaysia has also resulted in natural disasters such as erosions and floods, which he recommended the public sector to introduce policy and regulation to mitigate this issue.

Zachau, however, said that while the world economy currently has little bright spots, Malaysia’s fiscal health is commendable.

He said the government’s debt level of around 53% of the country’s gross domestic product is comparatively low, and its budget shortfall that is below 5% (at 3.2% last year) gave it room to do any stimulus measures for the short term.

He also said Malaysia has a strong financial system, where access to credit is widespread thanks to decades of work and systematic development by both private and public institutions. This is important to prevent missed business and livelihood opportunities for rural communities.

“Besides Asean, countries in the Middle East were also looking to benefit from Malaysia’s financial services to strengthen their own system,” Zachau added, noting that Malaysia’s expertise in financial inclusion is now sought after in many countries.

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