Budget gets the numbers right, but productivity still a challenge

Prime Minister Anwar Ibrahim delivered Malaysia's budget on October 9, citing various literary figures and delivering a slogan: "reach for the sky, stay rooted in the earth." The numbers in the budget match the words, with GDP growth of 6% year-on-year, placing Malaysia among Southeast Asia's top six economies. Inflation is around 2%, and the ringgit remains steady against the US dollar. IMD ranked Malaysia the 15th most competitive economy globally, second in the region to Singapore.

However, fuel subsidies will cost around RM40 billion this year due to rising oil prices, pushing the fiscal deficit to 3.6% of GDP. Federal debt stands at approximately 64% of GDP. Growth may slow to 4.7% next year, according to the Asian Development Bank. The budget's focus is on household measures, with total outlays increasing to RM510 billion, including investment by state-linked funds.

Operating spending rose by 11%, while development spending grew by 2.5%. Cash and grocery aid will reach RM16 billion next year, with RM100 in grocery credit for eligible adults.

The budget also includes personal tax relief, increased minimum wage, and exemptions for small and medium-sized firms. While Malaysia has made strides in reducing its deficit and improving household aid, productivity and wages remain weak. Employee compensation accounts for only 33.9% of GDP, falling short of the government's target of 40% by 2030.

To improve productivity, the government can focus on medical devices, digital policy, and health sector reforms. Additionally, Malaysia can leverage its role in the ASEAN region by becoming a testbed for clinical AI and hosting major live events.