Although Malaysia's economy is riding on the right track, substantial reforms are needed to create the human capital required for the country to achieve its planned targets, a World Bank study shows.

World Bank economist Frederico Gil Sander cited several upward trends in the Malaysian economy, but noted that, overall, these were still average and below Malaysia's aim of matching the achievements of members of the Organisation for Economic Cooperation and Development (OECD).

"Malaysia has made good progress but is still lagging behind where it wants to be," Sander said at the launch of the World Economic Monitor - Malaysia Report in Kuala Lumpur yesterday.

NONE The number of youths seeking tertiary education and the share of people in the labour force with tertiary education has been increasing. Yet, at 25 percent, that share was still middling, as were Malaysia's test scores that are below the OECD average, he added.

The same applied to skilled jobs as most jobs created in the last decade were mid-skilled or high-skilled jobs, yet overall most jobs available in the country remained low-skilled.

Also, women's overall participation in the labour force is lower if compared with other Asian and OECD countries, Sander said.

Soft skills, fluency in English vital

He also highlighted several key areas of reform Malaysia need to take improve its economy, saying that the country had to find a sustainable path to increasing wages through greater productivity.

NONE In emphasising reforms in education, Sander ( left ) said Malaysia needed curricula prioritising soft skills, as the importance placed on rote memorising was no longer enough to keep up with the demands of today's employers.

Citing a survey done by the World Bank, he noted that soft skills such as fluency in English and competency in information technology and communication skills were key demands of firms looking to hire skilled workers.

He also raised the need to give schools more autonomy and accountability. Encompassing processes such as selecting or firing teachers, fixing salaries and implementing discipline policies, he said, would create more competition and provide greater incentives for performance among schools.

Structural reforms were also needed in the economy to ensure that the demand for skilled workers was sustained, because the lack of demand was one factor for the country's brain drain.

To retain talent, Malaysia had to ensure that skilled workers could get jobs and therefore the creation of jobs for people with higher skills was necessary.

Pitfalls of minimum wage

On the topic of minimum wages, Sander stressed that while such a policy would bring benefits, it would be no cure-all for economic problems.

worker According to the World Bank report, minimum wage can help correct labour market imperfections if implemented well, but it cannot not effectively address poverty and inequality, and neither will it stimulate the productivity of companies.

Pointing out that implementation and impact evaluation were important, Sander said "Minimum wage can have a place in Malaysia, if it follows a predictable, evidence-based revision process."

The World Bank study expressed concern that Malaysia's budget was highly dependent on oil revenue and questioned whether the future generations could still rely on this revenue, and suggested that the use of oil revenue be more rules-based.

The bank estimates that Malaysia's economy will grow by 4.6 percent in 2012 and 5.1 percent in 2013.

Accelerated private investments driven by the country's Economic Transformation Programme (ETP) initiatives such as the MRT project and a solid labour market are expected to drive this year's growth.

The institution's 5.1 percent growth projection for Malaysia next year is based on the assumption that the global economy will continue to recover.

However, Sander admits, the economic situation of the European Union and the United States of America will heavily influence this growth prediction.