Last updated: October 2015

Malaysia is a highly open, upper-middle income economy. Malaysia was one of 13 countries identified by the Commission
on Growth and Development in its 2008 Growth Report to have recorded average growth of more than 7 percent per year for 25 years or more. Economic growth was inclusive, as Malaysia also succeeded in nearly eradicating poverty: the share of households living below the national poverty line (USD 8.50 per day in 2012) fell from over 50 percent in the 1960s to less than 1.0 percent currently. 

From an economy dominated by the production of raw natural resource materials, such as tin and rubber, even as recently as
the 1970s, Malaysia today has a diversified economy and has become a leading exporter of electrical appliances, electronic parts and components, palm oil, and natural gas. After the Asian financial crisis of 1997-1998, Malaysia continued to post solid growth rates, averaging 5.5 percent per year from 2000-2008. Malaysia was hit by the Global Financial Crisis in 2009 but recovered rapidly, posting growth rates averaging 5.7 percent since 2010.

Growth was accompanied by a dramatic reduction in poverty from 49.3 percent in 1970 to 1.0 percent in 2014. However,
pockets of poverty remain and income inequality remains high relative to other developed countries: Malaysia’s gini coefficient of income inequality stood at 0.41 in 2014, compared with 0.31 and 0.33 in the Republic of Korea and Japan (both as of 2010), for example. Real income of the bottom 40 percent of households increased by an average 6.3 percent per year between 2009 and 2012, compared to 5.2 percent for the average household, suggesting the benefits from growth were being shared.

Malaysia’s near-term economic outlook remains overall favorable, despite some risks. The economy has diversified from
commodities and the Government has taken steps to broaden the revenue base by introducing a Goods and Services Tax in 2015. Short-term risks include further declines in oil prices and oil related taxes that still account for around 30 percent of public revenues, although this is partially compensated by the removal of fuel subsidies in 2014. Other risks are related to the volatility in capital flows from the normalization of US monetary policy. The long-term sustainability of this favorable outlook hinges on structural reforms to strengthen medium-term fiscal planning, and to boost capabilities and competition within the economy.

Accelerated implementation of productivity-enhancing reforms to increase the quality of human capital and create more competition in the economy will be key for Malaysia to secure a lasting place among the ranks of high-income economies. Malaysia has been working to address these challenges. In 2010, Malaysia launched the New Economic Model (NEM), which aims for the country to reach high income status by 2020 while ensuring that growth is also sustainable and inclusive. The NEM includes a number of reforms to achieve economic growth that is primarily driven by the private sector and moves the Malaysian economy into higher value-added activities in both industry and services.

Last updated: October 2015

The World Bank Group’s current partnership with Malaysia is focused on knowledge-sharing. It is centered on support for Malaysia’s vision to join the ranks of high income economies by 2020 through inclusive and sustainable growth, and to share its lessons with developing countries.

In January 2015, the World Bank Group signed an Establishment Agreement to set up an office in Kuala Lumpur. The new office will facilitate the sharing of Malaysia’s successful development experience with other developing countries around the world, and the generation of new research on global issues. It will also allow Malaysia to leverage directly the global knowledge and expertise of the World Bank Group to enhance capacity essential for its transformation into a developed and high-income economy.

The International Finance Corporation (IFC) views Malaysia as a platform for increasing South-South investments as Malaysian companies deepen their investments and presence in emerging markets. As part of this strategy, IFC recently invested in IHH
, a Malaysia-based healthcare and medical education company with operations in eight countries. In addition, IFC is also looking to mobilize greater volumes for both debt and equity transactions and is exploring possible advisory services programs to address specific needs within Malaysia.

Last updated: October 2015

The World Bank publishes the bi-annual Malaysia Economic Monitor (MEM), which reviews recent economic developments and provides an independent analysis of the near- and medium-term economic outlook. It also provides in-depth analysis of a topic relevant to Malaysia's long-term development. A recent example is the “Transforming Urban Transport” MEM on how improving urban transportation is essential to reducing the high costs of traffic, boosting economic growth, and improving people’s living conditions. The Economic Monitor receives extensive press coverage, and has informed public debate on issues of boosting the quality of education and increasing women’s participation in the labor force.

Studies prepared for the Government have often served as inputs into Malaysia’s 5-year Economic Plan and sectoral strategic plans (e.g. National Higher Education Strategic Plan). Examples include a study on the Knowledge Economy, the Investment Climate Assessment, and the Blueprint for Services Sectors. The study on "Moving up the Value Chain" led to a shift in using value added instead of foreign direct investment as a key indicator of industry performance. The corporate governance, accounting, and auditing Reports on the Observance of Standards and Codes (ROSC) were used by the Securities Commission to shape relevant reforms, some of which required legislative changes.