KUALA LUMPUR, Oct 11 -- The government will continue to formulate and implement appropriate policies to further improve the country’s total factor productivity (TFP) to realise the nation’s Shared Prosperity Vision 2030 (WKB2030).

The Finance Ministry (MoF), in its Economic Outlook 2020 report, said the TFP is a vital factor to sustain long-term economic growth.

It said during the period of 1990–1997, capital accumulation and labour drove Malaysia’s economic growth with a negative contribution from TFP.

“After the 1997 Asian financial crisis, the government has taken several measures to enhance TFP in addition to boosting investment and improving the labour force participation rate.

“Despite these efforts, the two input factors still led growth, with TFP contributing only 1.1 per cent from 2010 to 2018,” the report said.

Citing Kim & Loayza study, it said there are five main determinants for TFP growth, namely innovation, education, market efficiency, physical infrastructure, and institutional infrastructure.

The MoF said the government has implemented the Science, Technology and Innovation (STI) policy in 2013 to promote innovation and its latest initiative to embrace Industrial Revolution 4.0 (IR 4.0) is expected to enhance innovation in the country.

It said innovation indicators such as public and private expenditure on research and development (R&D), the number of patent applications by residents and non-residents and the number of publications in scientific and technological journals, indicate the level of innovation in Malaysia.

During the 2008-2017 period, public and private expenditure on R&D and the number of publications in scientific and technological journals showed an increasing trend, while the number of patents registered also experienced a similar pattern but declined after 2015.

The government has allocated the highest allocation for education subsector, accounting 20.4 per cent of the total budget in 2019, indicating its commitment to enhancing human capital.

According to the report, overall indicators used to reflect the development in human capital such as expenditure on education, the Programme for International Student Assessment (PISA) score, secondary school enrollment rate, and percentage of the population with tertiary education, showed an improving trend over an extended period.

In addition, the government is also committed towards market reforms as it revamps and rectifies mismanagement practices to ensure better transparency, accountability, enhance business confident, and reduce the cost of doing business.

To support institutional infrastructure, the government has also introduced reforms, including improvement on election process and the launch of the National Anti-Corruption Plan 2019-2023, among others.

Over an extended period, all indicators continued to improve but recorded opposite trends since 2015.

The World Bank’s Governance Indicators (WGI) consist of six indicators – voice and accountability, control of corruption, government effectiveness, political stability and absence of violence, regulatory quality, and the rule of law.

Meanwhile, the report said physical infrastructure’s indicators displayed improving trends with some variation in fixed and mobile phone subscriptions.

In the 2020 Budget, the government will focus on several areas, including economic opportunities, human capital, inclusivity, public institutions, and public finances following the unresolved trade war, policy uncertainties and disinflationary pressures.

“Strategic initiatives in 2020 are expected to mitigate the impact of external risks on domestic economy.

“The government is committed to make Malaysia an attractive destination for high-technology and high-value industries,” it said.

The report added that the 2020 Budget proposes several measures to catalyst the economy via an improved public-private partnership, extensive access to small and medium enterprise financing and incentivising faster adoption of IR 4.0.

-- BERNAMA