Economist: Spend more to develop human capital and infrastructure

KUALA LUMPUR: Malaysia’s medium to long term growth potential will be better served by more spending to develop human capital and physical infrastructure in order to be competitive, says Asian Development Bank (ADB) chief economist Dr Jong-Wha Lee.

Budget 2010, which is scheduled to be announced on Friday, has been speculated to reflect the 1Malaysia concept besides having a lower operating expenditure due to the higher fiscal deficit this year.

Malaysian Institute of Economic Research executive director Datuk Mohamed Ariff Abdul Kareem had said last week that this year’s fiscal deficit would be slightly higher than the Government’s estimate of 7.6% due to lower income tax collection and expected reduction in corporate tax rates.

Lee said on the sidelines of a conference of the ADB, Bank Negara and the European Union that the two areas in which Malaysia could improve on were human capital and infrastructure. He said this was part of the restructuring and rebalancing that export-reliant regional economies including Malaysia would have to go through to see medium to long-term growth.

Lee said Malaysia would have to improve its human capital before it could move up the value chain in terms of economic development.

“The role of the education system is very important and so is research and development to build a technology platform for the move up,” he said.

He said that as the fiscal deficit was high, there was a need to efficiently allocate resources and spending given the limited scope for fiscal expansion. He said Malaysia could maintain spending on infrastructure as the country’s debt to gross domestic product ratio was still manageable.

“There’s not much room to manoeuvre but Malaysia must still address short-term recovery issues besides addressing mid-term objectives as well as social objectives such as all-inclusive growth,” he said.