KUALA LUMPUR, Dec 6 — Increased productivity will help Malaysia make more meaningful gains towards becoming a high-income nation than temporary handouts such as the 1Malaysia People’s Aid (BR1M), said Dr Zakariah Abdul Rashid.

The Malaysian Institute of Economic Research (MIER) executive director said higher productivity would be accompanied by higher wages, which would then result in increased domestic demand.

"That means in long term we should design a policy so that the economy, especially our workers will be having high productivity, so that they will be able to earn high income,” he told reporters on the sidelines of the National Economic Outlook Conference 2017-2018.

Higher wages will also help households repay their debt.

MIER’s report on the Malaysian Economic Outlook 2017-2018 stated that private consumption is expected to grow at 5.4 per cent this year, below an average growth of 7.1 per cent a year for the past six years.

It noted that slowing domestic demand was also having a greater effect on the country’s economic growth due to an accompanying decline in private investment.

"High dependency on private consumption to boost domestic demand comes with a price, first, private debt level accumulated to close to 90 per cent of GDP as a result of an easy consumption credit.

"This will increase debt servicing burden to households and this in turn will limit future spending prospects. Second, the current policy to boost consumer spending via transfer payments is good for improving current spending but it impedes future growth prospects.”

Zakariah explained that transfer payments like BR1M was only a short-term solution and not sustainable.

The BR1M was introduced as a one-off payment to help low-income households cope with rising cost of living, but has since become an annual and increasing stipend.