Overview

Last updated: September 2016

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. 

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.

Though extreme poverty is less than 1 percent, 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 broadly favorable, reflecting a well-diversified economy, despite some risks. The Government has taken steps to broaden the revenue base, in particular by introducing a Goods and Services Tax in 2015 and by removing fuel subsidies in 2014. Recent increases in the minimum wage and public sector salaries to support households’ income may prove challenging to sustain as fiscal consolidation continues, which raises the importance of boosting labor productivity and increasing the efficiency of the social protection. Introducing unemployment benefits may also help to improve matching in the labor market and provide support as the labor market softens. 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: September 2016

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 March 2016, the World Bank Group officially launched its Global Knowledge and Research Hub in Malaysia. The new Hub is the first of its kind, serving both as a field presence in Malaysia and as a global knowledge and research hub. It focuses on sharing Malaysia’s people-centered development expertise and creating new innovative policy research on local, regional and global issues.

The three pillars of work:

Pillar 1: Sharing the Malaysia Experience with the World. The ‘Malaysia Experience’ is relevant for developing countries in Asia and across regions that are transitioning out of poverty.

Pillar 2: Supporting Malaysia’s Goal of Becoming a High-Income Economy. The World Bank Group’s international experience will provide Malaysia with a wide array of development solutions and expertise, customized to specific challenges.

Pillar 3: Learning Together for Global Solutions.  The new hub carries out cutting-edge development policy research in partnership with local and international research institutions.

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 Healthcare, 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: September 2016

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 “Leveraging Trade Agreements” MEM June 2016 issue, which aims to highlight how the implementation of new regional trade agreements can help Malaysia carry out key economic reforms and accelerate the country’s transition to high income status.  The Economic Monitors receive 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.

Through the World Bank’s Development Economics Research Group (DECRG), the office conducts original studies spanning economic growth and risk management to program evaluation and the implementation of key public services. Through the Global Indicators Group (DECIG), the office will carry out primary data collection and research for the Doing Business, Enterprise Surveys and Enabling the Business of Agriculture projects.

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.