Speech

Ingredients for Malaysia's Economic Prosperity

June 24, 2019

AS PREPARED FOR DELIVERY

Introduction & Theme

Distinguished guests, ladies and gentlemen, good morning! Selamat Pagi!

Thank you, Professor Norma, for that generous introduction. It is an honor to be here at University Malaya, the oldest university in Malaysia. Thank you, Professor Saadah, for hosting us this morning.

I hope to learn from each of you today and discover more about this vibrant and diverse country.

Later today, in fact, I will be participating in a Hari Raya ceremony celebrating the end of Ramadan. I have heard about all the Malaysian dishes that will be served.

I am eager to try one of your national dishes in particular – Assam Laksa. I understand it is a spicy and sour soup that can be prepared in a multitude of ways yet always achieves the same result – a delicious blend of ingredients. I thought I would borrow from this idea in my speech this morning.

First, I would like to look together with you into some of the ingredients that have made Malaysia’s achievements so special and then, look at how, mixed together, new ingredients can deliver a fulfilling future for this nation. My hope is that these remarks do not make us too hungry!

I. Malaysia’s Economic Achievements

Let us start with Malaysia’s record of success.

Malaysia should be enormously proud of its achievements over the past twenty years.

Since 2000, Malaysia’s real annual GDP growth averaged 5.5 percent. Real income per capita grew by nearly 6 percent per year. Average life expectancy has increased by almost 3 years. [1]

How did you get here? In part by pursuing economic diversification, strengthening the financial sector and focusing on sustainable growth.

The result has been a more inclusive, resilient Malaysia that was able to withstand the impact when the global financial crisis struck in 2008.

True to the spirit of this country, you took adversity and turned it into new opportunity. A little bit like how the sour element of the laksa gives it so much flavor.

Malaysia capitalized on its geography to improve trading relationships and foster integration. It has established itself as a global manufacturing powerhouse, producing computers, cell phone parts, semiconductors, and much more.

But Malaysia does not just produce, it also invents. Malaysia has become a hub of innovation. It is the home to the Bayan Lepas Free Industrial Zone — sometimes called the Silicon Valley of the East.

Over the last five years, start-ups ranging from digital media companies to web-based financial services to online professional recruitment agencies have sprung up across the country.

And we know an entrepreneurial economy like this one can only thrive with an educated workforce. This has started to happen here in Malaysia.

In 2003, universal access to primary education was established. In recent years total government spending on education approached 5 percent of GDP — significantly higher than most other countries in the region. [2]

Spending on higher education, reflected in the success of this university and many others around Malaysia, now matches many OECD countries.

There is an old saying about government spending, “Show me your budget and I will tell you what you value.”

Well, when I see a budget like this one, and I visit this wonderful, world class university, it is clear what Malaysia values — the education of the next generation.

But we all recognize there is much more to do on education — and I will come to that in a moment.

So, what is the takeaway of Malaysia’s story over the last few decades? Conditions are constantly changing and we always have to adapt and think about how we can do things better.

That is something we at the IMF are doing right now, reflecting in part our experience in Malaysia and the region. We realize that there are increasingly complex issues arising from the intersection of capital flows, monetary and exchange rate policies, and macroprudential measures.

This calls for further thinking about our policy advice, to go beyond existing guidance.

Like making laksa, there are many different ways to achieve the desired result. We, at the Fund, aim to learn from the wide array of approaches countries are using and come up with fresh ideas that can meet our members’ needs.

Our goal is an integrated economic policy approach that helps our member countries think through the challenges they face and ultimately assists them in creating a better economy for the future.

Put simply, looking at Malaysia’s experience is part of improving the IMF’s policy advice.

It calls to mind the words of the founder of this country and the first chancellor of this university — Tunku Abdul Rahman. He said, If we pull together and work together with the maximum of goodwill and harmony, there is no limit to what our people can achieve in the years to come.”

Those words were true when they were spoken in the 1960s and just as true today. But what will the years to come look like for Malaysia?

II. The Key Ingredients for Malaysia’s Long-Term Success

We meet at a moment when support for international cooperation is questioned in some quarters. Global trade growth has been subdued for more than six years and the largest economies in the world are putting up new trade barriers. This will have a direct impact on an integrated and open economy like Malaysia’s.

Just as before, Malaysia can meet this challenge with creativity and enhance its recipe for success. To get there, you will need the right mix of ingredients to create inclusive, sustainable long-term growth. Prime Minister Mahathir has said the key to economic success is boosting productivity growth. He is exactly right.

Raising productivity is essential if Malaysia is to reach its goal of high-income status in the next decade. Despite the economic success of the last twenty years, productivity has not grown as much as hoped, and in recent years it has stagnated.

Why does this matter? Because productivity growth drives average income growth and raises living standards.

So, this morning I want to briefly highlight three key ingredients to boosting productivity in Malaysia . There are certainly more, but this is a good place to start.

a) Improving Governance and Tackling Corruption

The first is improving governance and tackling corruption.

When corruption becomes institutionalized, it poisons the ability of a nation to attract investors and create jobs. Young people understand this better than most. A recent survey of global youth showed that young people identified corruption — not jobs, not lack of education — as the most pressing concern in their own countries. [3] I wonder if some of you would agree.

To me, it makes sense. Corruption is the root cause of so much of the injustice people feel in their daily lives.

That is why the IMF is focusing on this issue and will be including improving governance in more of our work with members going forward.

I know it is a focus for the Malaysian government as laid out in their election manifesto.

In 2018, The National Center for Governance Integrity and Anti-Corruption was established. It has already proposed new ways to improve procurement processes and remove conflicts of interest.

In January, the government launched a new anti-corruption plan, with a focus on making financial transactions more transparent and strengthening oversight capabilities .

This is excellent progress. As always, the key will be implementation -- following through by enshrining these changes in law and implementing each step of the reform agenda.

The IMF is eager to work with you in this effort. We believe these measures can help attract businesses to invest across Malaysia and in turn generate new jobs and opportunities for all citizens. But it is only one ingredient in the mix.

b) Investing in High-Quality Education

Another is investing in high-quality education. I told you I would come back to this point.

While the resources invested in education have dramatically improved over the past twenty years, the results have not yet been fully realized.

Malaysia still ranks below the OECD average in math, reading, and science. Regional and socio-economic disparities persist across the country and for certain groups, especially lower-skilled adults, automation is threatening jobs.

Looking at other countries’ experiences, there is a clear path forward for Malaysia to continue its remarkable commitment to improving education.

Part of the solution is increased funding for lifelong learning and skills retraining programs. But we can also look at the earliest stages of education.

A compulsory education requirement could provide a much-needed boost to student enrollment rates and help hundreds of thousands get on the right track early.

And once young people reach university age, Malaysia can think creatively about training students for the jobs of tomorrow. This means more online courses and part-time coursework — both of which can help students gain new skills in a short period of time.

Investments in high-quality education can reduce skill mismatches, raise wages, and help all Malaysians harness the potential of new technologies.

And as the child of teachers I also have to say this — let us not forget the educators. Yesterday I met with educators from Teach for Malaysia.

One issue they are focused on — as you are here at the University Malaya — is improving the quality of teaching – including incorporating more math and science into the curricula at all levels.

Prime Minister Mahathir recently spoke eloquently about the changes that can help young Malaysians. He said, “ We must have a good education system that stresses the need to know science, mathematics, and technology.” And he went on to highlight how language skills complement a math and science push: New technology often comes to us in English. Without understanding English, it will be difficult for our students to apply artificial intelligence in creating new products .”

Reforms to emphasize math and science can help young people — perhaps some of you in this room — become the designers of the next great mobile phone app. They can fuel your aspirations and equip you with the tools needed to build an even brighter future for your country.

And studying languages along with traditional humanities subjects may be just the complement to technical skills to enable success in the future.

Now, there is one more ingredient I want to highlight this morning. I tend to think of it as a secret ingredient because it is far too often overlooked: Empowering women, which can boost growth and help make it more inclusive.

c) Boosting Labor Force Participation of Women

The reality is that Malaysian women tend to have less access to the labor market and fewer career opportunities compared to their peers in neighboring countries. [4]

Women in Malaysia earn about one-third less than men on average and the data suggests this gap is largely due to discrimination in the workplace. [5]

Progress is being made. The share of women opening bank accounts in Malaysia now outpaces the gains in other ASEAN countries. [6] Since the global financial crisis, female employment has grown at a faster pace than male employment .

The new government has appointed five female minsters, four female deputy ministers, and the first female deputy prime minister in the country’s history — some of whom are alums of this university! And, of course, the BNM itself is led by an extraordinary woman — Governor Shamsiah.

Malaysian women are asking for change. A recent survey showed that 80 percent of women are interested in flexible work arrangements, but only 20 percent had ever used them.

Another survey showed nearly 60 percent of working mothers are unable to perform their jobs from home.

The government is listening. New laws have been implemented to protect women’s jobs while they are on maternity leave and remove gender discrimination in the workplace.

And the government’s recent budget includes measures to increase paid family leave and mandate that any government-linked company have at least 30 percent female representation on its board. Frankly, I think it should be 50 percent! But this is a good start.

The IMF believes that taken together, these efforts can raise female labor force participation rates to over 56 percent by 2020. In turn, this could mean a boost to GDP growth and overall productivity in the economy.

Changes like this are always hard, but they are worth it. Here we can draw inspiration from one of the best squash players in the world, your national hero, Nicol David. She said, “ It is always about the challenge. It is what determines you.” That kind of resilience is truly the secret ingredient to success.

Conclusion

Let me conclude.

Like with laksa, there are a variety of combinations that will deliver economic success for Malaysia.

There is no one ingredient or one solution. There are, however, core ingredients that with the right mix can deliver for this country. I have offered a few today.

And I hope throughout my visit I can continue to listen and learn from you about what you believe is needed for Malaysia’s success — and how the IMF can best engage.

Because if there is one fundamental lesson in laksa — or in life — it is that we all are part of the same shared history and the same shared future.

Thank you very much. Terima Kasih.