IMPLEMENT STRATEGIC, INNOVATION-DRIVEN INDUSTRIAL POLICIES, LABOUR MARKET REFORMS TO INCREASE HOUSEHOLD INCOME - BNM

KUALA LUMPUR, March 24 (Bernama) -- Implementing strategic and innovation-driven industrial policies, as well as labour market reforms, can increase household income by improving productivity, creating more job opportunities and ensuring fair compensation, says Bank Negara Malaysia (BNM).

The central bank said reforms should also focus on enhancing labour market flexibility by easing restrictive labour laws and encouraging workforce mobility, thereby strengthening labour market institutions while promoting policies that ensure fair compensation aligned with worker productivity.

For example, BNM highlighted that improving skills standardisation would allow workers to transition more easily between jobs and industries. 

Additionally, leveraging technology can enable flexible work arrangements, accommodating diverse workforce needs and increasing labour force participation, particularly among women.

These recommendations were outlined in BNM’s Annual Report 2024 as part of efforts to meaningfully raise incomes and address cost-of-living pressures.

“More direct measures, like price controls and subsidies, can provide significant short-term financial relief and help stabilise the prices of essential goods. However, these must be used sparingly, as they are fiscally costly and unsustainable.

“Moreover, it may cause distortions that hinder natural price adjustments, potentially harming the economy in the long term. In this regard, countercyclical macroeconomic policies such as monetary and fiscal measures along with structural reforms must work together to keep inflation low and stable,” BNM said.

The central bank also noted that fiscal policy can be more targeted to help specific groups manage rising living costs, for example, through targeted subsidies or tax breaks for households.

“Furthermore, when supply disruptions from events such as adverse weather cause general price increases, the government can provide direct cash assistance to affected households to supplement their income,” said BNM.

The bank also emphasised that fiscal policy plays a role in enhancing the economy’s productive capacity and suggested the government invest in infrastructure, introduce favourable tax policies for high-growth, high-value industries, and promote research and development initiatives.

Meanwhile, the bank shared that price pressures could also stem from market structures that raise costs, making the economy more vulnerable to shocks.

For instance, BNM explained market inefficiencies could lead to monopolistic practices and reduced competition, enabling large firms to raise prices without improving quality.

To address this, BNM recommended structural reforms to boost productivity, enhance competition and strengthen economic resilience.

"These reforms require long-term adjustments to policies, institutions and economic frameworks. The ultimate goal is to foster a vibrant economic environment that encourages competition, efficiency and higher income growth.

"At the same time, they aim to keep inflation low and stable. By tackling both cost and income factors, these reforms can help households better cope with future cost-of-living challenges," BNM added.

-- BERNAMA