This article first appeared in Forum, The Edge Malaysia Weekly on March 22, 2021 - March 28, 2021

The World Bank report on what Malaysia needs to do to escape becoming a “middle-income nation” is all too familiar to anyone following the country’s social, political and economic developments.

The report drills down to several factors bogging down progress towards high-income economic status. They range from corruption, inadequate accountability in the handling of public funds, rising income inequality, an ineffective education system, low productivity, low wages and, finally, low income.

Apart from a few slides stating that Malaysia’s march to becoming a high-income economy is within reach, the report lists a litany of shortcomings that ail the country.

Ask any economic technocrat following developments here and they will tell you that these problems are not new. The 187-page World Bank report on Malaysia unveiled last Wednesday highlights them once again.

The only difference is that it points out that the government is saddled with high debt levels and political uncertainty that could be a drag on the economy for years to come.

Between political uncertainty and high debt levels, the former is certainly a more difficult challenge to overcome. In fact, since 2017, politics seems to have taken precedence over the economy, resulting in mediocre growth rates.

Despite slower-than-average growth rates over the last few years, the World Bank envisages that Malaysia should attain high-income economy status between 2024 and 2028.

But it has to undertake deep structural reforms on several fronts for that to happen.

Structural reforms are a nice catchphrase for any organisation to use to draw the attention of its audience. But they are difficult to achieve, more so in view of the country’s current political situation.

At the moment, a loose coalition of political parties make up Perikatan Nasional (PN), which has control of Putrajaya. PN came about only after no other political coalition could prove to the Yang di-Pertuan Agong that it had a convincing majority in parliament to rule the country.

Nobody wants a general election (GE) to be held anytime soon. The return to normalcy may take up to a year. The priority for all is to see it happen sooner rather than later.

Moreover, a GE, if held, is not likely to produce the desired outcome — which is a political party that is able to hold its own in parliament for five years and have the will to carry out structural reforms.

Because of the political quagmire, there is a growing chorus of technocrats who feel that Malaysia needs a “reset” mechanism to kick in so that meaningful structural reforms can be carried out.

A reset mechanism is a non-political solution to break a political deadlock. It means that the civil administration continues to run the country, supervised by an independent committee, until there is some consensus among political parties on how to govern without being disrupted by members of parliament leaving one party for another.

The operative term is “an independent committee”, which is not difficult to put together considering we do not lack good people with vast administrative experience. The more difficult part is getting non-ambitious personalities to lead the committee.

Structural reforms are hard to carry out here because almost everything mooted to improve governance and the economy is viewed from the context of race and religion, and politicised.

When Pakatan Harapan (PH) came to power in May 2018, it promised structural reforms to improve governance and the quality of economic growth, and reduce debt and inequality. Towards this end, it had ambitious plans to carry out several reforms touching on parliament, the Public Services Department, the Attorney General’s Chambers and even the prime minister’s tenure.

The PH government wanted to separate the office of the attorney general and public prosecutor, and limit the tenure of the prime minister to two terms or a maximum of 10 years.

But, as former attorney general Tan Sri Tommy Thomas reveals in his book, there was no political will, especially on the proposal for a two-term prime minister.

The World Bank report suggests the reintroduction of the Parliamentary Services Act, repealed in 1992, which provides for parliament to conduct its own administration, staffing and financing. It also called for a Public Service Act to ensure that civil servants are not beholden to political appointees in the executive branch.

Both these pieces of legislation were broached during the PH administration, but were never made into law.

The pandemic exposed how fragile the Malaysian economy has become from years of mediocre growth rates and low-paying jobs. Compounding the problem is the fact that the government cannot afford to take on more borrowings without risking a possible rerating downwards.

The shallowness of the social safety net system was exposed when the low-income group had to take out their compulsory savings with the Employees Provident Fund to spend on living expenses during the pandemic.

Sadly, the salaries of the lower-income group are also unlikely to increase much in the next few years as about 50% of Malaysian workers are likely to see their work being automated.

The government’s direct financial assistance covers a large group of those in the bottom 20% of the population. However, as the World Bank describes it, the amount given to those in the segment is small, even relative to the income levels of the bottom 40%.

The World Bank has proposed structural reforms in six broad areas in order for Malaysia to progress towards becoming a high-income economy. Among others, it calls for increased competitiveness, improving the institutions that are guardians of public funds and broadening the government’s revenue base.

Political stability is the key to any structural reforms, but the current state of politics could go on for a few years, which means there are not likely to be any. Without a clear solution in sight, a reset mechanism is an option that will enable the much-needed reforms to be implemented.

M Shanmugam is contributing editor at The Edge

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