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Malaysia’s myriad reform challenges await action

Stewart Nixon / Share:
People take part in the celebration of Malaysia's National Day in Putrajaya, Malaysia, Aug. 31, 2019. (Photo by Chong Voon Chung/Xinhua)

The triumphant optimism that accompanied Malaysia’s democratic revolution of May 2018 has faded against a lingering backdrop of unrequited expectations. Malaysians concerned with persistent cost of living pressures and rising inequality have felt little relief from populist adjustments to consumption taxes and fuel subsidies. Meanwhile an unnerving familiarity with the ousted regime is starting to take hold, with political defections, policy U-turns, rising ethnic politicking, a softening approach to China and the persistence of former government policies long slated for reform.

Despite waning popular sentiment, it would be unfair to discredit the Pakatan Harapan coalition government’s achievements to date. It has resolutely championed efforts to improve the standards expected of politicians, police and civil servants, pursued a vigorous anti-corruption campaign, lowered the voting age to empower young Malaysians and expanded the role of parliament in exercising democratic functions. It has made considerable progress in establishing an institutional platform supportive of reforms which uplift the economy and society. The time is ripe to start delivering on its vision of a ‘New Malaysia’.

Reform stagnation under the former government has bestowed an intimidating list of economic policies in need of attention. Fiscal reform is high among them, and while already a focal point requires greater ambition. Transparency around expenditure and revenue measures and their medium-term budgetary impacts — particularly regarding major government procurements and raids on government-linked company dividends — should be heightened to build confidence among taxpayers. A substantial reassessment of the tax and transfer system is urgently needed to restore budget sustainability and underpin efforts to reduce inequality and living cost concerns. An aspiring high-income country with a strong social conscience should not be afraid of taxing more to fund improved services and a social protection system.

A comprehensive productivity reform agenda is also a top priority, with education, entrepreneurship and competition all central concerns. Competing objectives, ranging from human capital to social and cultural development, have diluted the education system. A substantial system overhaul is needed to go from being a strong basic education provider to a producer of globally competitive skilled graduates. This means encouraging intellectual discovery and soft skills development, advancing cultural exchange, reducing administrative burdens on educators, empowering localised decision-making and improving data availability for research and policy evaluation.

Entrepreneurship too would benefit from a facilitative education system — particularly to increase digital familiarity — but it also requires a competition environment conducive to small business development. An economy dominated by government-linked companies — especially in key enabling sectors including banking, energy and transport — is no such environment.

Another productivity enabler in need of a clear and considered policy approach is infrastructure. Debate around infrastructure development is unhealthily fixated on politicised mega projects, preventing a more important conversation around Malaysia’s ordinary needs. Once rated among the best in Asia, perceptions of Malaysia’s physical infrastructure quality have been trending downwards in recent years. Maintenance expenditure has not kept pace with requirements. Logistic performance has similarly deteriorated compared to leading competitors (including neighbouring Singapore). Kuala Lumpur is the lowest rated city in Asia on most urban public transport sustainability measures.

A critical first step for improving infrastructure is delivering a root and branch assessment of present and projected long-term infrastructure needs — something that the much-anticipated National Transport Policy hopefully incorporates. A detailed project pipeline would provide investors certainty, helping to tap into deep Islamic finance markets and regional infrastructure development initiatives. Better allaying fears around Chinese investment will also support infrastructure development.

If the economic agenda seems daunting, creating a ‘New Malaysian’ society involves an even rockier reform road. ‘Temporary’ affirmative action policies are approaching their 50-year anniversary, having long since deviated from fostering social harmony to perpetuating ethnic divisions. National unity efforts continue to be undercut by the political framing of policy issues with racial overtones. They are also hampered by continued difficulties in renegotiating the governing compact with the Borneo island states.

With opposition parties aligning along ethnically and religiously divisive lines, the more demographically diverse government remains the only legitimate (though wavering) proponent of a truly inclusive nation. It is imperative that today’s youth grow up thinking of themselves as Malaysians with shared ideals, and with equal opportunities to participate in future governance, society and economy.

Bold reforms can face serious roadblocks, as the government has already found in progressing its governance agenda. A gauntlet of vested interests, institutional deterioration and a divided electorate are providing a true test of its capability and resolve. But economic headwinds and expectant citizens have little patience for excuses, so the time is now for the government to up the ante.

Stewart Nixon is a Research Scholar in the Crawford School of Public Policy, The Australian National University. He is lead author of a new report from the Asian Bureau of Economic Research in the Crawford School on Malaysia’s economy, politics and relations with Australia under the new government. This first appeared in East Asia Forum.

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