A World Bank report on Malaysia‘s economy released Thursday said the implementation of new regional trade agreements can help the country put into place key economic reforms needed to accelerate the country’s transition to high-income status.
Malaysia is now engaging in a new generation of regional agreements, including the Regional Cooperation Economic Partnership, the Trans-Pacific Partnership and the European Union Free Trade Agreement. These agreements can help attract investment, spur innovation and technological upgrading and further open up market access for Malaysia’s exports of goods and services, the World Bank’s Malaysia Economic Monitor said. They can also bring benefits through reforms in new areas that were not included in past agreements, such as competition policy, government procurement, investment-state disputes and investment policies.
The RCEC is a proposed free trade agreement between the 10 member states of the Association of Southeast Asian Nations, while TPP is a pending 12-country FTA that runs from Vietnam to the U.S.
“The new generation of trade agreements can provide the needed impetus to boost Malaysia’s economy to greater heights,” said Dato’ Sri Mustapa Mohamed, minister of international trade and industry. “The 11th Malaysia Plan emphasizes competitiveness and productivity as important ingredients to raise the standard of living of Malaysians. These trade agreements can open up market access for goods and services, facilitate new types of foreign direct investment, encourage more competition, provide greater access to skills and technology, and create more and better jobs for Malaysian workers.”
But Datuk Abdul Rahman Dahlan, economic minister in the Prime Minister’s department, said while trade agreements can benefit the overall economy, they could potentially impact unskilled workers and businesses that are less competitive.
“Workers’ skills will need to be upgraded and the labor force will need to move from the sectors with less potential for growth to sectors with more potential,” Dahlan said.
He said it will be be critical to maintain programs that support labor and business “through training, easing labor mobility, promoting innovation and entrepreneurship.”
Malaysia’s economy remains resilient, the report said, with gross domestic product projected to grow 4.4 percent in 2016 and 4.5 percent in 2017. The outlook reflects a gradual deceleration in private consumption in Malaysia due to softening in the labor market and continued adjustment to fiscal consolidation.
Private investment is also expected to slow down as commodity prices and global economic growth remain subdued. The report notes that key risks facing the Malaysian economy stem from commodity price instability and uncertainty over the growth trajectory in the global economy and its impact on Malaysia’s exports.
The Malaysia Economic Monitor notes that new trade agreements can advance Malaysia’s reform agenda by improving its services market, enhancing foreign direct investment and promoting innovation and job creation, especially for small to medium-size firms.