Malaysia investment slump shows need for structural reforms: World Bank

Kuala Lumpur

MALAYSIA risks falling behind in the regional competition for foreign investments due to longstanding policy and structural issues, as it comes in "striking distance" of becoming a high-income nation, the World Bank said.

Foreign direct investments to Malaysia fell 56 per cent to US$3.4 billion in 2020, a government report said this month, as the Covid-19 pandemic battered its trade-reliant economy. The United Nations Conference on Trade and Development in a January report said FDI into Malaysia fell 68 per cent last year, the worst rate in South-east Asia.

Foreign inflows should remain subdued as Malaysia lags in reforms to policies that drove its 1970s to 1990s boom, said Richard Record, the bank's lead economist for Malaysia.

"The policies and the tools and approaches that worked well in the past, are probably not the same tools and approaches that will be needed in the future," he said ahead of Tuesday's launch of the bank's flagship report on Malaysia.

He said there was uncertainty about Malaysia's vision and what it can offer investors compared to regional peers. The country last year suffered its worst economic performance since the Asian Financial Crisis, contracting 5.6 per cent, largely due to the pandemic.

Mr Record said Malaysia needs high quality foreign investment to boost growth, but that requires broad reforms in everything from the education system and labour participation to its investment promotional framework. REUTERS