KUALA LUMPUR, July 22 (Bernama) -- Strong small medium entreprises (SMEs) can be a safety net for Malaysia, if growth in the global economy remains protracted, due to weaknesses in developed economies.

Public Bank in its July Economic Review said strong SMEs not only support stable economic growth but can also increase the resilience of the Malaysian economy to external shocks in the long run.

The government in the 10th Malaysia Plan (10MP) said it would continue to focus on the development of SMEs as a more vibrant engine of growth.

To further promote SMEs, the 10MP will introduce new measures to reduce regulatory costs of doing business, build capacity and capabilities of SMEs and enhance access to financing the sector.

It said measures to improve the regulatory environment for businesses are expected to improve Malaysia's ranking in the global economy in terms of ease of doing business in the country.

In 2010, Malaysia was ranked 23 out of 183 economies by the World Bank in terms of the ease of doing business.

Public Bank said the potential of SMEs is ample in the 10MP, given their established and strong foundation in the Malaysian economy.

The sector currently, contributes about one-third of Malaysia's GDP and provides over 56 per cent of total employment in the country.

Based on the experience of other economies in Asia such as South Korea and Hong Kong, where SMEs contribute about half of the GDP, there is ample room for growth and to form a stronger backbone of the economy, it added.

In addition to this, the transformation of the public sector to a "competitive corporation" will help economic growth in the 10MP period by boosting the efficiency of delivering public services and facilitating private investment.

"The transformation process will not only result in higher efficiency and productivity of the public sector, but also result in higher capability and capacity to meet the increasing expectations for the public sector to deliver more sophisticated services ahead," the bank explained.

It said with the expected increase in private investment and once again the private sector to lead economic growth, the size of the public sector in the economy is expected to be leaner at the end of the 10MP period.

Since the Asian financial crisis in 1997/98, private investment in Malaysia as a proportion of GDP has trended down significantly due to increased competition for foreign investment with other emerging economies, such as China.

To increase private investment, the government said it would embark on efforts to create a more business-friendly environment with clear, stable and consistent policies.

The efforts will also focus on building the capacity of the public sector and improving the interface between the government and businesses by injecting best practices while attracting high calibre talent into the public service.

-- BERNAMA