1. NEAC National Economic Advisory Council
New Economic Model for Malaysia
NEAC

2. Section I
Issues and Challenges 2

3. e
We Have Been in the Middle Income Trap for Quite Some Time History shows the need of a compelling reason to change is required to escape
GNI Per Capita
; USD thousand
(USD thousand)
Korea 22 20
Slovakia
Czech Rep 18 16 14
Poland 12
HIGH INCOME
BOUNDARY 10
Chile 8
Argentina 6
Malaysia 4
Thailand 2
Indonesia
Source : World Bank, NEAC Analysis

4. Pre-Crisis growth gradient Post-Crisis growth gradient
Malaysia’s Growth Trajectory Has Diverged Lower
Slower growth means our aspirations will take longer to achieve all things being constant
Pre-Crisis growth gradient
Divergence
Post-Crisis growth gradient

5. Average annual GDP growth
Post Asian Crisis, Our Growth Rate Has Been Mediocre We are no longer a clear leader in the region having lost our shine
Average annual GDP growth
Pre-crisis
; %
Post-crisis
; %
China
China
Malaysia
Vietnam
Singapore
India
Vietnam
Malaysia
S. Korea
Singapore
Taiwan
Indonesia
Indonesia
Philippines
Our growth rate is now equivalent to that of our neighbouring countries
Thailand
S. Korea
India
Thailand
Philippines
Taiwan US UK UK US
Japan
Japan
Average 6.0
Average 5.0

6. Mid-Term Review Target
Lacklustre Demand-Side Performance Indicators
Given the state of today, private investment is key
Components
Estimate
9th MP
Mid-Term Review Target
GDP
3.2
6.0
Consumption
5.6
7.6
Public
4.1
6.2
Private
8.0
Investments
3.7
8.6
6.8
7.0
-0.4
9.8
Exports
-0.3
4.8
Imports
1.0
6.4

7. Private & Public investment as share of GDP
Not Investment But Consumption Has Been Driving Growth The private sector has taken a backseat with the government filling in the vacuum
Private & Public investment as share of GDP ;%
Average annual growth
; %
Pre-crisis
Post-crisis
Private consumption
Government expenditureGovernment expenditure
Investment

8. Specific areas of weakness are preventing us from moving forward - fundamental reform is long overdue

9. WE CANNOT CONTINUE AS WE ARE
Amidst Global Changes, Our Advantages are Being Undermined We must act before our position deteriorates further
Our strong position in commodities and manufacturing is being eroded
Global investment is focusing on larger scale markets, not small economies
Lack of talent and innovation, ineffective institutions and widespread corruption are barriers to growth
Intense competition in our new sources of growth e.g. medical tourism, ICT, and Islamic products and services
Our immediate neighbours have renewed vigour evidenced by growth rates; reforms are well being implemented
In the region, our economy was one of the hardest hit by the recent global crisis
WE CANNOT CONTINUE AS WE ARE

10. Section II
The New Economic Model 10

11. The Prime Minister’s Vision - Transforming Malaysia The Two Pillars of the National Transformation Programme
1Malaysia – People First, Performance Now
Preservation and Enhancement of Unity in Diversity
Government
Transformation
Plan (GTP)
Effective Delivery of
Government Services
Economic Transformation Programme (ETP)
New Economic Model
A High Income, Inclusive
And Sustainable Nation
High
Income
Inclusiveness
Sustainabiliy
10th & 11th Malaysia Plan Roll-Out
Macroeconomic growth targets & expenditure allocation
Implementation of Government’s Development Programmes

12. Meets present needs without compromising future generations
The New Economic Model (NEM) Aspirations of a united and advanced nation – The Goals to be Achieved
Rakyat
Quality of Life
Targets
US$15,000 - $20,000
per capita by 2020
Meets present needs without compromising future generations
Enables all communities to fully benefit from the wealth of the country
HIGH INCOME
Inclusiveness
SUSTAINABILITY

13. The Goals High Income Inclusiveness Sustainability
Lifting the real growth rate to an average of 6.5 % per annum over the period
Enhance growth for expanding economic opportunities
Promoting sustainability through improved public financial management
Per capita GDP will rise to about USD 17,700 by 2020
Pursue equitable and fair opportunities and fairness in process
Environmental sustainability as top priority
Aggregate demand will have to grow at a robust pace
Accelerate liberalisation for growth
Will unlock the value of investment to be as a main driver of economic growth by 2020 , as well as labour productivity and efficiency
Focus on the bottom 40% of households and small business
Private consumption will rise and increase its share of GDP
Emphasis opportunities for inclusiveness
Public consumption will slow down
Stress knowledge creation and the knowledge economy

14. The Economic Transformation Programme (ETP)
Section III
The Economic Transformation Programme (ETP) 14

15. The Economic Transformation Programme (ETP)
The reforms required to escape the middle income trap
Enabling Actions
Strategic Reform Initiatives
Outcomes
Coherent “big push” to boost transformation and growth
Re-energising the Private Sector
Developing Quality Workforce and Reducing Dependency on Foreign Labour
Creating a Competitive Domestic Economy
Strengthening of the Public Sector
Transparent and Market friendly Affirmative Action
Building the knowledge base infrastructure
Enhancing the Sources of Growth
Ensuring Sustainability of Growth
Break logjam of vested interests through political will and leadership
High
Income
Middle Income Trap
Prepare Rakyat for change
Inclusive-
ness
Sustain-
ability
Risk
Downward
Spiral
Feedback: Review, Revise

16. Economic Transformation Requires Tough Decisions and Bold Measures How far are we willing to go in the reforms?
Five (5) Selected Tough Decisions To Be Made
Restoring market prices for goods and services will improve economic efficiency but may initially raise consumer prices and costs of doing business
Practices that promote fair and equal opportunity will inspire market confidence and create a competitive economy but may lead to political repercussions
Reduced dependence on foreign labour encourages firms to move up the value chain or embrace automation while those that cannot will exit, costing some local jobs
Flexible hiring and firing reduces entry and exit costs for businesses while wage levels will better reflect skills; but the perception of less job security will irk unions
Greater decentralisation in decision making to achieve speedier implementation and effectiveness but may require some delegation of authority
THERE MUST BE A CHANGE IN MINDSET AND POLITICAL WILL

17. Eight (8) Strategic Reform Initiatives (SRIs) All SRIs have cross-cutting impact over all sectors
Re-energising Private Sector
Developing Quality Workforce
Competitive Domestic Economy
Strengthening Public Sector
Transparent & Market Friendly Affirmative Action
Building knowledge base infrastructure
Enhancing Sources of Growth
Ensuring Sustainability of Growth 1 8 2 7 3 6 4 5

18. Re-energising the private sector

19. Developing a quality workforce and reducing dependency on foreign labour

20. Creating a competitive domestic economy

21. Strengthening the public sector

22. Transparent and market-friendly affirmative action

23. Building the knowledge base and infrastructure

24. Enhancing the sources of growth

26. Ensuring sustainability of growth

27. What’s next from the NEAC?
Section IV
What’s next from the NEAC? 27

28. NEAC Part 2 : Policy Measures and Implementation Framework Participation of stakeholders to ensure ownership and buy-in on detailed actions
NEAC Part 2: Policy Measures and Implementation Framework Planning
Current Reform Initiatives already announced: Light the Fuse for Momentum
Roll-out ETP policy measures
NEAC Continuous Engagement of Ministries and Stakeholders
Public
Consultation
NEAC Task Forces on SRIs for Policy Measures
And Implementation Framework Planning
NEAC input for 10th MP
NEM
Launch by
Prime Minister
10th Malaysia Plan
Launch
Endorsement of
ETP Implementation
Plan

29. present needs without compromising future generations
New Economic Model
(NEM)
Economic Transformation Programme (ETP)
Rakyat
Quality of Life
Targets
USD15,000 - USD20,000
per capita by 2020
Meets
present needs without compromising future generations
Enables all communities to fully benefit from the wealth of the country
HIGH INCOME
Inclusiveness
SUSTAINABILITY 8
Strategic Reform Initiatives
(SRIs)
Re-energising Private Sector
Developing Quality Workforce
Competitive Domestic Economy
Strengthening Public Sector
Transparent & Market Friendly Affirmative Action
Building knowledge base infrastructure
Enhancing Sources of Growth
Ensuring Sustainability of Growth 8 7 1 2 6 5 3 4
End
National Economic Advisory Council