KUALA LUMPUR: Skills and competitive levels are two key areas that Malaysia needs to address to achieve high-income status by 2020, said the World Bank.
“In Malaysia, when you look at the quality of infrastructure, it seems to be quite reasonable. [But] there are challenges in two areas. One is skills — and that certainly includes education — and the other is competition,” its senior country economist for Malaysia Dr Rafael Munoz Moreno said during a panel discussion at the Asean Fixed Income Conference 2017 on “Riding the Wave of Asean Bond Market Integration” yesterday.
He said while Malaysia had shown progress in its path to becoming a high-income economy and commended the government for its decision to rationalise subsidies to target those who really need it, more needs to be done.
“Productivity is good, at a level where we see in the upper middle-income nation — it’s there. But when we compare it with [the levels of] productivity in high-income economies, it’s still not there. Something still needs to be added there,” he said.
Moreno also highlighted that areas crowded with government-linked companies (GLC) have distorted competition, resulting in productive firms failing to grow as much as they could in those areas.
He also told the audience that with the Trans-Pacific Partnership (TPP) agreement not likely to happen with the pullout of the US, it is important to ensure that some of the reforms that were highlighted in the agreement continue to be pushed forward.
“The opportunity in the TPP helps to rally reforms in a few areas. One of it is the competition. That’s something that we’d like to see, how the government would push forward the agenda without the TPP,” he said.
He stressed the importance of a level market regulation even without the TPP for Malaysia to improve on its productivity.
On the protectionist policy that US President Donald Trump appears to embrace, Moreno said it could drive Asean’s push for trading integration forward as members in the region see challenges in movement of exports to the US.
Meanwhile, Standard & Poor’s Ratings Services economist for Asia-Pacific Vincent Conti said the price of crude oil is likely to trade in the range of US$60 to US$65 per barrel by the end of this year.
“Crude oil price is not going to be far above the US$60 level [this year]. The major driver for the oil price is the Organization of the Petroleum Exporting Countries’ decision to cut production,” Conti said during the same panel discussion.
Conti is of the view that the upside for crude oil prices will be limited because of two reasons.
“One is the high levels of global crude oil inventories and the more efficient mechanics for oil production, especially in shale oil, making it viable at about US$55 to US$60 per barrel level. This would put a ceiling to the upside of the oil price,” he said.
On trade issues and concerns, Conti shared that a lot of risks to global trade flows are seen with Trump possibly imposing tariffs on China, hurting global trade.
“The region doesn’t really export a lot of final goods. So, whether the slowdown in trades [is] in either China or the US, which is where most of the final demand goes to, it will be bad news for trade within the Southeast Asian region,” he said.
However, Conti pointed out that the good news for the region is that domestic demand continued to be supportive so far.
As for inflation level, he believes that the region including Malaysia could see an initial spike with a stronger crude oil price level. However, this trend is not expected to last given some of the factors that cap the oil price rally.