THE economic forecast of slightly above 5 per cent growth in 2011 by several analysts does not augur well for the nation's aspiration to achieve a developed economy status within the next nine years. The government's vision of a developed Malaysia has been heard loud and clear but what is lacking is an equally strong message that a nation's success lies not only on the government's will to implement bold economic policies but also on its people's determination to achieve success through hard work and perseverance.
Malaysia possesses tremendous potential to achieve high economic growth. It is the envy of many developing economies and is perceived as one of the most promising emerging markets in the world with its vast natural resources, high gross national savings, negative debt-service ratio, low unemployment rate, vast geography, educated workforce and financial stable environment. This is compounded by the government's chivalrous attempt to implement its economic agenda through series of economic transformation programmes - unprecedented in Malaysia's economic history.
Over the last one year, serious economic reforms were already laid on the table and ardent attempts made to implement stabilisation and structural adjustments on its macroeconomic stability. The government is aware of the country's structural weaknesses such as its limitations of import substitution, public sector dominance and extensive government control over private sector activities, and has served notice that it will embark on various actions to resolve several aspects of these weaknesses.
If the reforms are carried out with fervour, the economic landscape is expected to change significantly. A new layer of dynamism will produced a more level playing field that will breed competition within the private sectors. Competition will be the new engine of growth to propel the economy to greater heights.
The government's announcement on series of transformation agenda has already inspired several private companies to re-strategise themselves by strengthening their core competencies while positioning themselves to seize the business opportunities that come with the new economic programmes.
Successful reforms will lead to a surge on foreign direct investments and ultimately higher savings and domestic confidence. What is essential for the government now is to maintain the economic reforms and implement bold measures to reduce expenditures on non-essential items while focusing on education and infrastructure development.
On the economic front, Malaysia's foreign exchange reserves stand at almost US$96 billion (US$1 = RM3.02) and the economy is essentially driven by domestic demand. All the economic indicators are looking positive. The annual growth in real consumption expenditure over the past four years average about 6.3 per cent.
There has been a rise in foreign and local investments in 2010 and 2011 with a robust growth rate of 17 per cent over the last 18 months. During this period, the contribution of investment to growth exceeded the contribution of final consumption expenditure.
The current investment rate, as a proportion of GDP, is 35.1 per cent while productivity of both capital and labour also contributes to sustaining high economic growth in 2010.
Malaysia is not immune from global economic recessions as evident in the global financial crisis of 2008 and the commodity crisis in 2007 to 2008. The US subprime crisis in 2009 has caused a substantial slow down to Malaysia's overall economic performance with a fall of 1.2 per cent in 2008 from the country's average growth rate of 5.8 per cent from 2005-2007.
Although Malaysia has nothing to do with the financial fiasco occurring across the Western world the fact remains that Malaysia cannot insulate itself from events that are occurring elsewhere.
Thus, the challenges that confront Malaysia's economy this year and continue to do so till 2020 fall into two categories - external economic vulnerability and macroeconomic stability.
The former revolves over the issue of economic uncertainties that are besieging the developed economy which may affect Malaysia's export growth; while the latter includes carrying out sound monetary policies that will affect the government's short and long term strategies to initiate institutional reforms needed to sustain high growth.
When compared to countries across Asean, Malaysia stands as the third best performing economy after Singapore and Thailand.
Although there is a clear moderation in growth from 7.1 per cent in 2005 to 7.2 per cent in 2011, the pace still makes Malaysia one of the fastest growing economies in Asia. Timely interventions from Bank Negara with counter-cyclical fiscal and monetary measures are helping the economy recover from the global crisis quickly.
With an impressive 10.1 per cent growth in the first quarter of 2011, an economic recovery seems well under way.
Malaysia's second quarter is expected to stay remain above at above 6 per cent buoyed by strong demands in the manufacturing and service sector.
There is an expected increase in commodity prices and the spike in oil prices will leverage any downfall of demands in the manufacturing sector during the third and forth quarter of this year.
There is a strong consensus that the spillover effect of Malaysia's economic transformation programme will bear fruit by 2011 and this will ensure the country's momentum to sustain its growth during its third and forth quarter.
The GDP growth for the entire year will remain robust and is expected at 7 per cent to 7.5 per cent boosted by stronger investor's confidence and local domestic demand.
This economic prediction may be at odds with several forecasts that tend to ignore factors such as increase in commodity prices, impact of government's transformation programme, strong domestic demands and higher investments across many sectors of the economy.
The factual figures will become evident by end of this year and Malaysians must remain confident that the nation is moving towards the right direction in its transformation drive because all indicators are pointing at a positive growth in 2011.
The writer is an Associate Professor with the Graduate School of Business, Universiti Sains Malaysia