As Malaysia plodded through a grim economic downturn last year, the government threw a hefty lifeline to people like Mrs Rosnah Sharif, a small-scale contractor.

Through balloting of projects by state agencies, she won a couple of small jobs in Kuala Lumpur last year. That included a 35,000 ringgit (US$10,466) job to retile the staircases of the Defence Ministry's staff quarters in the city, and a 80,000 ringgit upgrading of a municipal hall that entailed replacing windows, repainting, and installing new grilles and fences.

"I am grateful. There were many jobs last year," she told The Straits Times. Mrs Rosnah is among 31,000 small contractors who had been the prime beneficiaries of the government's 67 billion ringgit stimulus packages during the global crisis.

The government had pumped about 1 billion ringgit a month into the system from January last year. Prime Minister Najib Razak said last week that more than 113,000 projects worth 17 billion ringgit had been implemented. These helped Malaysia's economy expand by a better-than-expected 4.5 per cent in the last quarter of 2009, although it shrank by 1.7 per cent overall last year. This year's growth is expected to touch 5 per cent.

With nearly every sector showing growth in the last quarter, Mr Najib had declared the worst to be over. But opposition leader Anwar Ibrahim debunked it as "not only premature but irresponsible".

He said the latest economic forecast by the International Monetary Fund showed that Malaysia could have the slowest growth among South Korea, Singapore, Taiwan, Indonesia, Thailand, the Philippines and Vietnam this year.

US investment bank Morgan Stanley noted recently that Malaysia still faces structural issues in terms of its competitiveness and productivity. It noted that its net investment inflows have lagged behind other Asian economies and its global share of manufactured exports has declined.

Since 2007, Malaysia has seen a net outflow of investment as local companies invest more abroad than domestically.

The Edge weekly magazine, citing Bank Negara data, reported last week that the cumulative outflows have come up to 50 billion ringgit in the last three years. It estimated that two-thirds of the surplus earned from trade was being invested abroad, due to a saturated home market and higher profits abroad.

Analysts have called this a double whammy as foreign direct investment flows have also slowed in recent years - 22 billion ringgit last year, compared to 46 billion ringgit in 2008.

A former economics professor, Dr Fong Chan Onn, who is also a ruling Barisan Nasional MP, said the government should be concerned about this, and refocus on attracting the right sort of capital investment. "There is a positive upturn in the economy but there remains deep structural problems," he told The Straits Times.

He said Malaysia's main problems lie in its price controls, subsidies and low-cost structure, and the resultant dependence on cheap foreign labour.

He said price controls and subsidies, which now eat up 30 per cent of the government's operating expenditure, had kept costs artificially low in Malaysia. This had the effect of dampening wages, and encouraging a dependence on foreign unskilled workers.

The government is expected to address some of these issues in its New Economic Model at the end of the month. The unveiling of the plan has already been delayed twice.