Malaysian Economy Sees Best Growth In Two Decades. But Why?

In his budget speech to parliament, Malaysian prime minister Anwar Ibrahim expressed optimism that the nation’s economy will achieve higher-than-anticipated growth this year of around 4.5%. This is interesting because Malaysia appears to be an outlier in terms of growth amidst a global economic downturn. In fact, South China Morning Post reported, “Malaysia’s economy sees best growth in 22 years.”

Typically, during economic recessions, governments are forced to borrow heavily to stimulate the economy, and this can lead to higher debt levels. However, Malaysia has a different approach. The government imposed taxes on its citizens to compensate for the lack of growth and avoid over-borrowing. This is why Ibrahim’s financial plan proposed spending cuts and a taxation system that targeted the wealthy reported Reuters. So, while other countries are seeing their debt levels increase, Malaysia appears to be keeping a tighter grip on its finances and avoiding the pitfalls of over-borrowing.

Last year, Malaysian policymakers hiked their benchmark interest rate by 100 basis points through four consecutive adjustments. And now, the nation has posted the highest growth in decades. So, while the global economic recession has forced other countries to take desperate measures, Malaysia appears to have found a way to keep its economy growing. Bloomberg reported that “Malaysia grew at the quickest pace in more than two decades in 2022, as pent-up demand helped the nation take the mantle of the fastest-growing economy in Asia even if the title is likely to be shortlived.” This is an impressive feat, as many other countries are still struggling to contain the effects of the crisis. As such, Malaysia is an example of a nation successfully weathering the global economic storm, concluded the IMF. But what can other countries’ leaders and policymakers learn from Malaysia to promote sustainable growth?

Malaysia has 33 million inhabitants and an extensive internet penetration rate of 90%, which places Malaysians in 6th place for most hours spent online daily, according to data. According to Azeem Abu Bakar, managing director of Free Malaysia Today, one of Malaysia’s most accessed news sites, the nation’s success in economic recovery while looks promising in the short term, needs much more work to be sustainable.

Azeem Abu Bakar explained that Malaysia needs to ramp up its productivity level and one of the ways is to capitalize upon the digitalization trends already prevalent in the country and utilize them as an engine of growth. “The nation is adapting to the rapid digital transformation taking place in Southeast Asia and it must leverage technology to its advantage,” Azeem Abu Bakar continued.” He added, “This is how digital transformation can be used to foster economic resilience and drive growth. For example, at FMT, we have experienced an increase in reader engagement due to our digital initiatives and have established ourselves as a national brand by providing content on relevant topics including current affairs, business, and lifestyle.”

Other countries can learn from Malaysia’s example by embracing digitalization, focusing on cultivating young talent, leveraging existing infrastructure, investing in R&D for innovation-driven technology solutions, and utilizing the nation’s unique resources. These strategies will help create conditions for sustainable growth and economic recovery.

Yun Shen, an associate professor at the Surrey International Institute, Dongbei University of Finance and Economics, agrees. In an interview, she said, “Research has shown that financial inclusion has a positive effect on economic growth both in the short and long runs, and such financial inclusion powered through the digital literacy of ordinary.” This suggests that increasing the digital literacy and financial inclusion of people in a country will help further drive economic growth. Shen added the “Malaysian population will serve as a catalyst for the financial sector’s digitalization and economic rebound in the aftermath of the Covid-19 pandemic.”

But ultimately, it is up to each nation’s respective leaders and policymakers to make the most out of digital technologies and create an environment where citizens and businesses can benefit from cutting-edge technology solutions. “At the end of the day, success depends on how well each nation is prepared to embrace digital transformation and use it as a tool for economic growth,” said Azeem Abu Bakar.

That being said, it is also important to note that specific nuances and differences exist in how each country takes on digital transformation. Therefore, each nation must assess its conditions and develop strategies tailored to its needs and capabilities. As such, digital transformation initiatives should be tailored to each region’s specific needs and circumstances.

In any case, Malaysia’s success story is an example for other countries to look towards to achieve sustained economic growth. After all, digital transformation should be essential to every nation’s financial success: it can open up new opportunities and create avenues for businesses, entrepreneurs and citizens to thrive.