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Malaysia: From Developing Nation to Development Partner

Axel van Trotsenburg's picture
World Bank Vice President for East Asia & Pacific on opening a new office in Malaysia

In 1954, the World Bank’s first mission report on Malaya – as the soon-to-be-independent country was called then – expressed concern about its development prospects. The mission was “favorably impressed with Malaya’s economic potentialities and prospects for expansion.” But it questioned  whether the “rates of economic progress and additions to employment opportunities can move ahead of or even keep up with the pace at which the population and the labor force are growing.”

Sixty years and 25 million more Malaysians later, hindsight proved such worries overdone as income per capita climbed from USD 250 at the time of the report to over USD$10,000 today.

 

With its successful economic and social development, Malaysia is now actively moving into a new role as a global development partner—supporting other countries in ending poverty and sharing lessons from its journey to become a regional economic powerhouse. This new role is a natural fit for a nation in transition toward a high-income status, and a big gain for the rest of us.

 

In 2015, Malaysia chairs the Association of Southeast Asian Nations (ASEAN), aimed at coordinating regional integration in the $600 billion ASEAN Economic Community. And as of last year, Malaysia has become a full partner and contributor to the International Development Association (IDA) – the World Bank “fund for the poorest.

On Tuesday, 27 January, Malaysia and the World Bank signed agreements to establish a knowledge and research office in Kuala Lumpur to share its successful development experience with countries striving to make the same transition out of poverty and into shared prosperity.

Such a role suits a nation that can offer valuable lessons on development policies – many of them forged through a long and evolving partnership with the World Bank – that are highly relevant for poor and emerging countries in Asia, Africa and elsewhere.

What are some of the relevant lessons that have attracted international attention?

First, Malaysia has enjoyed exceptional sustained economic growth. According to the Commission on Growth and Development, Malaysia was one of just 13 countries to have recorded average growth of over 7 percent per year for 25 years or more. This record was accompanied by strong macro-economic management.

Blessed with oil, gas, tin and fertile land, Malaysia successfully converted natural wealth into shared prosperity in a diversified economy with competitive manufacturing and services sectors. That achievement is no small feat, as the authors of the 1954 report noted “any secondary industry has had to meet a very severe test before it could be considered worthwhile as against the alternatives which Malaya’s good fortune offered.” This diversification, along with sound fiscal and financial policies, is helping Malaysia address the impact of volatile – and recently declining – oil prices.

Second, as part of its growth strategy, Malaysia has become one of the most open economies in the world, with trade (imports plus exports) representing around 150 percent of GDP in 2014. This involved not only reducing trade barriers but also instituting an open investment regime. The liberalization of foreign equity ownership in manufacturing activities in 1985 and other contemporaneous efforts to boost infrastructure and modernize institutions presaged a surge in manufacturing exports from less than 30 percent of total exports in 1985 to over 80 percent by the early 2000s.

Third, Malaysia’s impressive growth performance was accompanied by an even more impressive poverty reduction. In the past 40 years, absolute poverty declined from nearly half of Malaysia’s population to one percent of households today. Poverty reduction was driven by growth, which created jobs for people and resources for government, as well as human capital development through investments in education and health.

Finally, Malaysia has also succeeded in leveraging finance for development. Based on a study conducted by the World Bank, about 80percent of the Malaysian population has access to a deposit account. As part of its strategy for financial inclusion, Malaysia has also been a pioneer in developing standards for Islamic Finance.

In stepping up its role as a global development partner, Malaysia stands to benefit from increased engagement with emerging economies. Through its role as Chair of ASEAN, it can contribute in the transformation of South East Asia’s developing economies including Myanmar, Vietnam and Indonesia who are also working hard to eliminate poverty.

At the same time, opening a World Bank office in Kuala Lumpur dedicated to knowledge and research underscores Malaysia’s new role as an emerging regional and global leader on issues such as poverty eradication and financial sector stability.

Comments

Submitted by Mashuk AliShah on

Malaysia represents a modal country in achieving what it has so far through good governance that addressed the issues of corruption and institutional development and transparency in all activities. It poverty reduction strategy is highly commendable and provides a model to address poverty issues in all developing countries. While the role of WB is emphasised ,Malaysia worked closely with other multilaterals including the ADB, Is DB and the IMF. Congratulations to the country for its achievements.MA Shah

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