KUALA LUMPUR - Following state elections in August, the Malaysian government is expected to drive the country faster towards economic reforms, including raising wages for workers and easing ways to do business, economists say.

Prime Minister Anwar Ibrahim, who is nine months into the job, needs to tackle the economic angst quickly. The rising cost of living, coupled with low wages for blue-collar and mid-level workers, had partially fuelled voter revolt in the recent state polls involving six Malaysian states that resulted in the opposition alliance Perikatan Nasional gaining popularity.

The economy is projected to grow between 4 per cent and 5 per cent in 2023, slower than the average growth rate of 6 per cent annually in the past two years.

Inflation, higher interest rates and trade tensions between world superpowers are among matters that have caused economic problems around the world, including in Malaysia.

Datuk Seri Anwar said recently that there will be some “major announcements” before the government presents Budget 2024 in October.

He launched on Friday the country’s New Industrial Master Plan (NIMP), which he said would transform the industrial sector by 2030 with estimated investments of RM95 billion (S$27.7 billion), mostly by the private sector.

“The government is fully committed to supporting the implementation of the NIMP 2030,” Mr Anwar said. “It will require an estimated total investment of RM95 billion through its seven years, predominantly from the private sector mobilised from private equity, capital and financial markets.”

He said the nation would move towards “higher value-added activities and high-skilled job opportunities”.

“What is most important is the projection that through NIMP’s interventions, the median (monthly) salary in the manufacturing sector is expected to grow by 9.6 per cent (annually), reaching RM4,510 from RM1,976,” said Mr Anwar, who is also Finance Minister.

Investment, Trade and Industry Minister Tengku Zafrul Abdul Aziz said later that part of the government’s NIMP’s allocations, totalling about RM9.5 billion, will be revealed in the 2024 Budget that will be presented on Oct 13.

Before the NIMP’s launch, economists told The Straits Times that Mr Anwar can now afford to focus on economic issues, as his government remains firmly in control of Parliament with a two-thirds majority, and with his coalition retaining control of Malaysia’s two most industrialised states Selangor and Penang in the Aug 12 state polls. The government also retained control of Negeri Sembilan in the state polls.

“The key is to prioritise reforms with the least political backlash, such as the entire social safety net for an efficient welfare system. Reforms in ease of doing business needs to be addressed as well,” said director of strategy Amir Fareed Rahim at political consultants KRA Group.

“Any backpedaling on reforms will be deeply disappointing to Pakatan Harapan’s voter base and Barisan Nasional, the partner of the unity government, may not necessarily gain any political capital from the delay on reforms,” he added.

The fundamental expectations of Malaysians have not changed, as they want the government to control the cost of living and increase job opportunities and wages.

The Anwar administration has said that it would tackle the sensitive issue of targeted government subsidies, but officials have said they are still working out the details.

Subsidies came up to nearly RM80 billion in 2022, the highest in Malaysia’s history. More than half of this amount was taken up by fuel subsidies. The government spent around RM10 billion in subsidies for electricity in 2022, while about RM2 billion was forked out for poultry and eggs.

Professor Geoffrey Williams, an economics professor at Malaysia University of Science and Technology, said that one low-hanging fruit for the government is looking into boosting the wages of workers and improving women participation in the workforce, as these can be handled quickly by changes in budget policy.

Labour statistics show that around 75.7 per cent of 6.45 million formal employees earn less than RM5,000 monthly. Out of these, a third make less than RM2,000 a month, lower than the national poverty rate of RM2,589 and below a month.

Malaysia has made some progress towards improving wages, such as setting the minimum monthly wage at RM1,500 from January 2023.

Still, the government will need to cajole employers on raising wages further, with companies wary of rising costs from raw materials and higher loan rates to expand their businesses.

“Although employers complain about the effects of the minimum wage on costs, there is very little evidence to support these claims and the minimum wage has not created higher prices or unemployment.

“The compensation to employees is 35 per cent of the gross operating surplus in Malaysia compared with employers of around 63 per cent, so there is a lot of room for employers to offer a fairer share of value-added to employees,” said Prof Williams.

To make Malaysia more attractive to investors, the government is facilitating the speeding up of government approvals for businesses, such as in applications for skilled expatriates.

The government in June made the work permit application process easier for companies seeking to hire professional expatriates by shortening the time frame to about 20 days from three to six months.

One way to push for higher salaries is by raising the productivity and skill of low-income workers. This could be done, for example, by training an assembly-line worker at a factory to work on a different line when needed.

“Efforts to improve the share of skilled workers are an ongoing affair. This would mean policies on promoting important industries, such as electrical and electronics, chemical and aerospace among others, are crucial as this will create demand for labour who possess Stem qualifications,” said Bank Muamalat Malaysia chief economist and head of social finance Mohd Afzanizam Abdul Rashid. He was referring to science, technology, engineering and mathematics qualifications.

Department of Statistics Malaysia data for the second quarter of 2023 showed that skilled workers in Malaysia accounted for 25 per cent of the total workforce, while semi-skilled employees form 62 per cent and low-skilled employees form 13 per cent.