Malaysia investment slump shows need for structural reforms: World Bank

Malaysia last year suffered its worst economic performance since the Asian financial crisis.
Malaysia last year suffered its worst economic performance since the Asian financial crisis.PHOTO: REUTERS

KUALA LUMPUR (REUTERS) - Malaysia risks falling behind in the regional competition for foreign investments due to longstanding policy and structural issues, as it comes within "striking distance" of becoming a high-income nation, the World Bank said.

Foreign direct investments (FDI) to Malaysia fell 56 per cent to US$3.4 billion (S$4.6 billion) in 2020, a government report said in March, as the Covid-19 pandemic battered its trade-reliant economy.

The United Nations Conference on Trade and Development said in a January report that FDI into Malaysia fell 68 per cent last year, the worst rate in South-east Asia.

Foreign inflows should remain subdued as Malaysia lags in reforms to policies that drove its 1970s to 1990s boom, said Mr Richard Record, the bank's lead economist for Malaysia.

"The policies and the tools and approaches that worked well in the past are probably not the same tools and approaches that will be needed in the future," Mr Record told Reuters ahead of Tuesday's (March 16) launch of the bank's flagship report on Malaysia.

He said there was uncertainty about Malaysia's vision and what it can offer investors compared with regional peers.

Malaysia last year had suffered its worst economic performance since the Asian financial crisis, contracting 5.6 per cent, largely due to the pandemic.

In its report, titled "Aiming High - Navigating the next stage of Malaysia's development", the World Bank expects Malaysia to achieve high-income and developed nation status some time between 2024 and 2028.

However, its "escape velocity" from middle income status is slower than that of other countries that reached high-income status, partly due to many factors within policymakers' control, Mr Record said.

Malaysia's economy grew on average 4 per cent annually over the past decade, a marked deceleration from the 9 per cent yearly growth from 1967 to 1997, according to the report.

Mr Record said Malaysia needs high-quality foreign investment to boost growth, but that requires broad reforms in everything from the education system and labour participation to its investment promotional framework.

Mr Firas Raad, World Bank country manager for Malaysia, said reforms would revitalise Malaysia's investment credentials and boost growth.

"While other countries sprinted into high income and developed nation status, Malaysia is jogging slowly," Mr Raad said.