Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on October 4, 2021 - October 10, 2021

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed answers 10 questions from The Edge on the 12th Malaysia Plan (12MP), which he was tasked to refresh for the post-pandemic world and was finally tabled on Sept 27.

 

 

The Edge: Congratulations on the successful tabling of the 12MP (after four postponements). The RM400 billion allocation for the 12MP is exceptionally large. How much of it is development expenditure and what else is included under the RM400 billion? Can you please provide a breakdown on the development expenditure and non-development expenditure portion you mentioned, such as for FELDA (Federal Land Development Authority) and Tabung Haji? Why the departure from the usual practice of counting only development expenditure?

Datuk Seri Mustapa Mohamed: Thank you for your kind wishes. The completion of the 12MP was the result of the hard work and extensive engagement by my colleagues at the Economic Planning Unit (EPU), as well as all government ministries and agencies, and many other stakeholders. Finally, it went to the Cabinet for approval. It was truly a team effort. Originally, it was meant to be tabled in parliament in August last year but, owing to the Covid-19 pandemic, we were forced to postpone its tabling. This turned out to be a blessing in disguise as it gave the government some time to revisit our earlier assumptions on Malaysia’s long-term socioeconomic challenges and goals in the light of the Covid-19 crisis.

As in the previous Malaysia Plans, the government has set aside a sum of development expenditure (DE) allocation to finance development projects and programmes, including new and continuation projects.

Indeed, the RM400 billion allocation for the 12MP is the largest in history. Half of it is for basic DE, which is meant for financing development projects such as building schools, hospitals and roads. The remainder of the allocation is for, among others, financing several public-private partnership projects and implementing a number of recovery plans for several institutions, such as FELDA, 1MDB (1Malaysia Development Bhd) and Tabung Haji. I hope this clears things up.

 

Not much was mentioned regarding new revenue sources for the government in the 12MP. Can you please share more details on how Malaysia plans to expand its fiscal space by 2025?

I have been speaking out about the need to find new sources of revenue for the federal government ever since the Pakatan Harapan administration axed the GST (Goods and Services Tax). However, we need to be aware of the situation on the ground. People are going through a challenging period. Many have lost their jobs and are struggling to put food on the table. To ask people to contribute more to the government’s coffers during this time would be inappropriate.

Government revenue has declined in tandem with the country’s economic contraction last year. On the other hand, expenditure has increased substantially, especially operating expenditure, mainly to support Covid-19-related spending.

The Fiscal Policy Committee chaired by the prime minister met a few days ago and discussed extensively the current economic conditions and the government’s fiscal situation. Among others, we deliberated measures to ensure fiscal sustainability, including improving our revenue collection and enhancing spending efficiency.

The fiscal deficit is expected to increase to between 6.5% and 7% this year and the government is planning to raise the debt ceiling to 65% of GDP. This should provide the necessary breathing space to cushion the impact of Covid-19 on lives and livelihoods.

As the economy recovers, however, we expect higher revenue collections beginning from the second half of 2022, and 2023 onwards, inshallah. The government remains committed to fiscal consolidation over the medium term. As mentioned in the 12MP, the fiscal deficit is targeted to be at 3.5% of GDP by 2025, from the expected 6.5% to 7% this year. A number of initiatives has been outlined under the 12MP towards achieving medium-term fiscal targets, including strengthening fiscal governance by institutionalising fiscal sustainability principles through the introduction of the Fiscal Responsibility Act. At the same time, the government will ensure that the introduction of any new tax will be implemented only after assessing its possible impact on the rakyat.

Ultimately, in the long run, we should ensure that our deficit is brought to a lower level and that the government’s fiscal strength is restored.

 

R&D spending is targeted to rise from 1% of GDP in 2020 to 2.5% of GDP a year by 2025. How much of this would be from the government and in which priority areas and sectors under the 12MP? Would spending 2.5% of GDP on R&D be enough to significantly change the fact that Malaysia is largely a user of technology but not a creator and innovator of technology? When tabling the 12MP, the prime minister mentioned that some 70% of total R&D spend would come from the private sector. How can the private sector play a role and take advantage of what the government wants to achieve?

The government is fully cognisant of the need to substantially increase the country’s R&D expenditure. This is why the 12MP has made the ambitious target of more than doubling our gross expenditure on R&D (GERD) from 1% last year to 2.5% by 2025. In absolute terms, between 2008 and 2020, our GERD more than doubled from RM6 billion to RM15 billion.

In 2020, the public and private sectors contributed almost equally in R&D activities. Our objective is to increase private R&D spending, and achieve the target of a 30:70 public-private ratio. It is unfortunate that, in Malaysia, unlike in many developed countries, business enterprises accounted for only 43.9% of total R&D expenditure. In the 12MP, the private sector — including GLCs (government-linked companies) — will be encouraged to collaborate with local and international research centres and higher education institutions to enhance product innovation.

In terms of priority areas and sectors, the government has recently identified specific areas and sectors on which we should spend more R&D resources to build our strategic advantage. These sectors have been outlined in the National Policy on Science, Technology and Innovation (NPSTI) 2021-2030. These priority areas will eventually drive the transformation of industry from technology users into technology developers and creators.

The lack of investment in R&D has affected our efforts to improve productivity. In addition, experimental development research, which includes the pre-commercialisation stage, development of prototypes, proofs of concept and pilot projects, was also low, affecting the rate of commercialisation. This was mainly due to a lack of collaboration between universities and industry. We need to spend more on R&D, and ensure that it translates into successful commercialisation.

 

The lack of government-to-government as well as government-to-business collaboration in creating a robust ecosystem was among the reasons that the development of industries such as aerospace deemed strategic in previous Malaysia Plans were lacklustre. What is being done to make sure the same will not occur in areas that the 12MP lists as strategic (electrical and electronic, global services, creative, halal, smart farming, tourism, aerospace and biomass) to propel economic growth?

The reason the 12MP identifies the aforementioned industries to propel growth is their significant multiplier effects, particularly in terms of strengthening our local MSMEs (micro, small and medium enterprises); creating high-quality employment opportunities; nurturing high-skilled human capital; and leveraging advanced technologies and niche capabilities.

Restoring economic growth along the five-year period would involve catalysing these strategic and high-impact industries. It is not true that there has been a lack of collaboration in these strategic industries. For instance, you mentioned aerospace — we have an active Malaysian Aerospace Council, which I established in my MITI days. We at the EPU see the aerospace players quite often to understand the challenges they are facing, and to explore how Malaysia can capitalise on their burgeoning industry.

It cannot be denied that there is a bigger role for the private sector to play in the development of industries deemed strategic in the 12MP. For instance, more and more investors should take into consideration environmental, social and governance (ESG) elements in their decision-making processes. The only way to get the private sector and state governments to meet the strategic goals of the federal government’s 12MP is to ensure greater collaboration between all relevant stakeholders. We will ensure that all relevant stakeholders work together, primarily in the fields of talent development, strategies and programmes execution, as well as technology transfer and creation. We hope this will create a much stronger ecosystem compared with the previous five-year plans.

The recent memorandum of understanding (MoU) between the government and Pakatan Harapan is just the beginning of more collaboration between the federal government and all state governments, regardless of political configuration. We want this Keluarga Malaysia spirit to be adopted not only by politicians, but also by the private sector, every government servant and individual citizen, to create a better ecosystem in which all Malaysians, regardless of political and economic background, will want to work together for the national interest.

 

Many plans and blueprints were mentioned in the 12MP. Of the various blueprints, master plans and the like with active periods in Malaysia right now, which are the most important in terms of economic development?

Some people say that if there is something Malaysia is known for besides our badminton skills and delicious food, it must be the endless plans and blueprints that the government continuously churns out. These plans are necessary for providing a vision for the future. However, I will be the first to admit that we have a lot of work to do on execution.

With regard to the aforementioned blueprints, in terms of economic development, I believe they are all important. Some notable mentions would be the National Investment Aspirations, the National Technical and Vocational Education and Training (TVET) Empowerment Agenda, MyDIGITAL and the National 4IR Policy. Together, these plans have the potential to provide a robust business environment for investors, build a future-proof talent pool that is relevant to industry requirements, and transform the socioeconomic landscape of the country through technology.

 

What are some of the specific things constantly measured by the EPU to ensure that necessary reforms and desired outcomes mentioned in the 12MP are happening fast enough? Will there be a public report card to show which agencies are meeting targets and which are falling short? How are duplication of roles between various agencies being streamlined and cut?

The Covid-19 pandemic has impacted all economies around the world and changed the global landscape significantly. We cannot afford to maintain the status quo. Bold reforms are needed to address uncertainties in the global economic landscape, and overcome shortcomings in our development approach, governance and implementation mechanism.

In about two weeks, the EPU will complete the Policy Implementation Plan (PIP) for the 12MP. The PIP will outline the implementation mechanism for every strategy and initiative outlined in the 12MP. Key implementing ministries/agencies will be identified and be given the responsibility to implement strategies and initiatives under their purview.

The PIP is developed based on a 3 by 3 framework, where all the strategies and initiatives under the 12MP are divided into three categories — namely, decisions and strategies highlighted in the prime minister’s speech; the 14 game changers; and the rest of the strategies contained in the over 500-page 12MP document. Strategies in each of the categories will be further classified into three groups: low-hanging fruits, KPIs (key performance indicators) with quantifiable targets and broad policy measures. The PM will chair a council, where key milestones and KPIs with quantifiable targets will be tracked to ensure they are carried out according to the outlines of the 12MP.

 

Of the various game-changing initiatives being implemented under 12MP, can you share some of the hard deadlines for key initiatives, such as by when a central database on poverty will be ready?

There are a number of deadlines, depending on the initiatives, with a majority of them marking 2025 as the ultimate year to achieve some of these goals.

Regarding the central database on poverty, we already have eKasih, which has served us quite well in ensuring that our social and economic assistance programmes cover the most vulnerable. In early November, the PM will launch the Pangkalan Data Perlindungan Sosial (PDPS), a database of all social and economic assistance provided to vulnerable groups in our society. The PDPS will eliminate redundancies as well as inclusion and exclusion errors in our poverty alleviation programmes.

 

Some see 12MP targets as more an aspiration rather than a must-do list. What are your thoughts on this? Is there any issue in the Plan that stands out and must be tackled?

It is completely natural to have targets that are ambitious, because it will inspire us to constantly strive for the best. For example, although we may not have reached some of the objectives of Wawasan 2020, I believe that without those high goalposts, we would not be where we are today. The can-do spirit, and aspiring mentality of Malaysia Boleh! should be embedded in all of us. Now, we want the Keluarga Malaysia spirit to galvanise every single Malaysian to adopt the whole-of-nation approach and achieve our ambitious goals together.

That being said, I understand why some might think the 12MP targets are too ambitious. That does not mean, however, that the government will not give our 110% to ensuring that we achieve our targets in the span of the next five years. We definitely will. The EPU will have a portal to track progress in the implementation of the 12MP.

In this regard, one of the important issues highlighted in the 12MP document is the environment and climate change. The degradation of the environment has become a very serious issue in Malaysia, and indeed the world, in recent years. All of us can help in our own ways to achieve the green targets of the 12MP. For example, the private sector can take the ESG push by the government more seriously going forward. Every single Malaysian should adopt sustainable production and consumption practices, and have no tolerance towards litter, open burning as well as other environmentally damaging practices.

 

Having overseen the planning of two Malaysia Plans, what do you hope the 12MP will do for Malaysia and Malaysians? What is your message to the people tasked to oversee its implementation?

Indeed, I oversaw the 9th Plan, where under the leadership of Tun Abdullah Ahmad Badawi, the government focused on the development of human capital and agriculture.

This 12MP, however, is totally different from the Plans that came before. Having just been in the midst of a once-in-a-century pandemic, where we are not completely out of the woods yet, every Malaysian has high expectations of the 12MP. Furthermore, the world is a lot more dynamic today. Besides Covid-19, technology and social media have become part and parcel of everyday life, and have changed everything. It was much easier to plan things back then. Today, it is harder.

My message to the various stakeholders tasked with implementing the policies and strategies of the 12MP is this: You must be cognisant that expectations are very high and that we have to focus on delivery. The public is monitoring us 24/7 through social media, and will keep us accountable for our promises. Let’s deliver them.

 

Can the 12MP finally lift Malaysia out of the middle-income trap, create more high-paying jobs, ensure shared prosperity for the people and make Malaysia worthy of being seen as an Asian Tiger again?

I acknowledge that some sections of the Malaysian public say that our country is a far cry from what it was in the mid-1980s to mid-1990s. It is normal to hear that we are in the middle-income trap and that we are lagging in every significant socioeconomic indicator relative to our peers. In every cliché, there is often an element of truth, and it must be admitted that we can do a lot better than [what] we are doing currently.

That being said, pessimism and cynicism can often be a self-fulfilling prophecy. I believe that if Malaysians keep complaining without putting in the work to change things for the better, then we will always be a mid-tier country. However, if we pull up our socks, and work together in the spirit of Keluarga Malaysia, we will finally reap the fruits of our efforts.

The 12MP is a guide for how we can become a better country. Whether we actually do so is up to every single one of us — government, industry and the rakyat at large. The 12MP has the potential to create a total of 1.054 million jobs, a large percentage of which should be high-paying if we attract more high-quality investments; if the industry shifts to automation; and if we strengthen collaboration between industry and academia.

I have no doubt that the 12MP has the potential to help us become a high-income nation by 2025, escape the middle-income trap, and make Malaysia an Asian Tiger once more. However, whether we actually do so is up to every single one of us. Let’s work together for a better future.

 

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