Thread by @ApurvaSanghi

For the #ConcernedMalaysian, here’s our (World Bank) latest assessment of 🇲🇾 Malaysia’s economy in 10 figures & 20 tweets, incl on GST, min wage, inflation. Thoughtful criticism most welcome 😊 This is from the latest #MEM. Here goes:

Growth is back, but you can’t eat growth! Firm sales back to pre-pandemic levels but household recovery is still uneven. 17% of low-income households continue to face food insecurity. So growth may be back but may not be felt by all.

Q) Do you “feel” this recovery?

Food inflation ~ x2 of consumer inflation; producer inflation continues to rise. So why does consumer inflation look good, while other indicators point the other way? This is because…

…Malaysia has among the HIGHEST (!) number of price controls in the region. This means short-term benefits but long-term damage. Q) Are price controls worth it?

Jobs are coming back, but are they right kind of jobs? High underemployment persists esp among women. New mums and dads now get more parental leave. Great! But need better childcare also.

Q) Who should provide childcare: govt or private sector?

On min wage: what exactly is a minimum wage? It’s your employer saying, “Hey, I can pay you less but that’s against the law”. So min wage legally prevents exploitation. MY’s move to increase minimum wage is thus progressive.

Also, interesting that when the min wage is raised, big companies say, “uh-oh, we have no choice but to raise prices”. But when these companies get tax breaks, do you hear them say “oh goodie, we can now cut down prices”. Hmmm…

And btw, how come we don’t talk of a “maximum” wage! Hmmm x 2 …

Anyway, MY’s new min wage is over 50% percent of the average wage. Min wage set btwn 40-50% of avg. wage in rich countries. So MY’s min wage on high-ish side.

Plus, around 30% of employment is informal. So new min wage could increase informality. So need to monitor & assess impact of min wage on labor mkt.

Q) Do you feel the economy can absorb the new min wage, say, in BOTH KL and Sabah?

On trade, Malaysia does well. But growing dependence of MY on China: 15% of MY exports now to China > than neighboring countries (TH, VN). Also, MY imports from China rose sharply – by 9 pp btwn 2016 - 2020.

Q) Who should Malaysia look to strengthen its trade with?

Government’s wallet getting tighter due to 3 Ds: High Deficits; High Debt; Declining revenues!

Subsidy bill huge & growing: total subsidies this year ~ 4.3% of GDP. Fuel subsidies alone are over 2% of GDP. To put in context…MY spent a TOTAL ~ 2% of GDP on social protection during the pandemic -- SAME amount as on fuel subsidies that mostly benefit the rich!

Q) Do you think that’s fair? (ok, no need to answer this one)!

GST better than SST but requires ramping up of targeted transfers. Subsidy rationalization & Fiscal Responsibility Act (“FRA”) could also ensure prudent spending.

Q)Would you support a GST or give up fuel subsidies?

And so we reach our outlook: MY’s economy may see decent growth this year. But it should be aware of risks both near and far.

Risks from around the globe: prolonged war in Ukraine; sharper China slowdown; more US interest rate hikes. These may reduce global growth and lower demand for MY exports.

On the domestic front:
1) MY’s growth is fragile ‘cos it is driven by consumption (vs. investments)
2) unequal recovery -- those in lagging states could fall further behind
3) unknown long-term ‘scars’ from lost years of learning & earning.

So what can Malaysia do to face this potential challenges? We identified 5+1 key priorities that can weather these risks

+1: Catch up by lagging states requires more cohesive federal- state framework. That’d increase stability + predictability of resources from federal  state. Poor educational outcomes is common factor that makes these states lag. So prioritize education.

How? Find out more in our report here: bit.ly/memreport2022 🙏