KUALA LUMPUR, February 9, 2023 - Malaysia's economic growth is projected to expand by 4.0 percent in 2023 amid an expected slowdown in external demand. This follows a stronger-than-expected recovery of 7.8 percent last year, according to the latest edition of the World Bank Malaysia Economic Monitor: Expanding Malaysia's Digital Frontier launched today. As the economy recovers, efforts at harnessing digital technologies can bring returns on growth, productivity, employment, and poverty reduction.
The increase in government spending during the COVID-19 crisis to support the economy has raised debt levels and reduced Malaysia's fiscal space. Therefore, efforts to rebuild fiscal buffers should be driven by higher revenue collection and better spending efficiency. An effective policy response should enhance the consumption tax framework, broaden the tax base of personal income tax, and streamline reliefs. Meanwhile, a gradual shift towards a targeted subsidy framework would help subsidies work better for lower-income households.
"Malaysia's recovery should be centered around building a revitalized economy based on digital, technology, value-addition, creativity, and innovation," said Rafizi Ramli, Minister of the Economy.
"Malaysia needs to revive its potential growth. Greater digital diffusion can support this objective along with higher capital investments. The digitalization challenges identified in the report are therefore important," said Ndiame Diop, World Bank Country Director for Brunei, Malaysia, Philippines, and Thailand.
The prolonged movement restrictions throughout the COVID-19 crisis caused an expansion in Internet access and usage and accelerated the digitalization of firms, particularly in the use of digital platforms and the uptake of digital payments, a key entry point into the digital economy. While digitalization expanded rapidly, the trend has been unequal across firms.
According to recent World Bank surveys, more than 80 percent of medium and large firms invested in digital solutions compared to 54 percent of small firms. The lack of financial resources and digital skills have been cited as key constraints towards digitalization. Smaller formal firms relied on more traditional methods of payment, especially cash, and vulnerable segments of the population remain unbanked, despite the expansion of digital financial services.
The report recommends reforms to close the digital divide and maximize its development dividends. Developing an inclusive, dynamic, and safe digital economy involves building solid foundations in five priority policy areas: (i) digital infrastructure, (ii) digital platforms (public and private), (iii) digital financial services; (iv) digital literacy and advanced digital skills, and (v) digital safeguards, such as data protection and cybersecurity.
