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Overview

  • Since gaining independence in 1957, Malaysia has successfully diversified its economy from one that was initially agriculture and commodity-based, to one that now plays host to robust manufacturing and service sectors, which have propelled the country to become a leading exporter of electrical appliances, parts, and components. 

    Malaysia is one of the most open economies in the world with a trade to GDP ratio averaging over 130% since 2010. Openness to trade and investment has been instrumental in employment creation and income growth, with about 40% of jobs in Malaysia linked to export activities. After the Asian financial crisis of 1997-1998, Malaysia’s economy has been on an upward trajectory, averaging growth of 5.4% since 2010, and is expected to achieve its transition from an upper middle-income economy to a high-income economy by 2024. 

    However, the COVID-19 (coronavirus) pandemic has had a major economic impact on Malaysia, particularly on vulnerable households. Having revised its national poverty line in July 2020, 5.6% of Malaysian households are currently living in absolute poverty. The Government is focused on addressing the well-being of the poorest 40% of the population (“the bottom 40”). This low-income group remains particularly vulnerable to economic shocks as well as increases in the cost of living and mounting financial obligations. 

    Income inequality in Malaysia remains high relative to other East Asian countries but is gradually declining. While income growth for the bottom 40 has outpaced the top 60 over much of the last decade, the absolute gap across income groups has increased, contributing to widespread perceptions of the poor being left behind. Following the removal of broad-based subsidies, the Government has gradually moved toward more targeted measures to support the poor and vulnerable, mainly in the form of cash transfers to low-income households. 

    Malaysia’s near-term economic outlook will be more dependent than usual on government measures to sustain private sector activity as the shock of COVID-19 reduces export-led growth, and as a depleted fiscal space limits public investment-led expansion. Over the longer term, as Malaysia converges with high-income economies, incremental growth will depend less on factor accumulation and more on raising productivity to sustain higher potential growth. While significant, Malaysia’s productivity growth over the past 25 years has been below that of several global and regional comparators. Ongoing reform efforts to tackle key structural constraints will be vital to support and sustain Malaysia’s development path.  

    According to the World Bank’s Human Capital Index, Malaysia ranks 55th out of 157 countries. To fully realize its human potential and fulfil the country’s aspiration of achieving the high-income and developed country status, Malaysia will need to advance further in education, health and nutrition, and social protection outcomes. Key priority areas include enhancing the quality of schooling to improve learning outcomes, rethinking nutritional interventions to reduce childhood stunting, and providing adequate social welfare protection for household investments in human capital formation.

    Last Updated: Apr 06, 2021

  • As an upper middle-income country Malaysia is both a contributor to the development of low- and middle-income countries, and a beneficiary of global experience in its own journey towards high-income and developed nation status.

    The World Bank Group Inclusive Growth and Sustainable Finance Hub in Malaysia (the Hub) serves as a partner to the country and its people in developing and implementing global development solutions.

    The Hub draws on global knowledge to further unlock Malaysia’s potential; catalyzes knowledge, research, and application for impact; and shares Malaysia’s development experience for the global development agenda.

    This work of the Hub under its second phase of operation from 2020-25 focuses on three thematic areas: 

    1. Supporting Inclusive Growth – Hub teams will conduct policy and research work in the areas of macroeconomics, inclusion, competitiveness, and human development to promote inclusive growth outcomes in Malaysia and other countries. 
    2. Promoting Sustainable Finance and Inclusive Finance – Hub analytical, advisory and research work will aim to boost financial sector development in Malaysia and other countries by promoting sustainable and Islamic finance solutions; and by strengthening financial inclusion and resilience outcomes.
    3. Enhancing Good Governance – The Hub’s work program will focus on enhancing governance and public sector management outcomes as Malaysia transitions to high-income and developed nation status and to share impactful development lessons with other countries seeking to make similar development journeys. 

    In covering these three broad thematic areas, the Hub’s overall work program will consist, in varying degrees, of both knowledge and research-related components, as well as both outbound and inbound activities.  

    Last Updated: Apr 06, 2021

  • The World Bank Group, through its Inclusive Growth and Sustainable Finance Hub in Malaysia, is committed to supporting the Government of Malaysia and her people, to implement reforms and achieve their aspirations toward an inclusive, developed nation.  Key highlights over the past five years include the following areas:  

    Engaging the government and the private sector in policy reforms that have:

    • Increased competition, reduced prices, and increased speeds for broadband internet via new analysis and research on Malaysia’s digital economy. 
    • Established a new asset class for the world with the Green Sukuk, an Islamic green bond, pioneered in Malaysia by Bank Negara Malaysia (BNM) and the Securities Commission with the support of the World Bank Group. 
    • Development of ‘A Green Taxonomy for Sustainable Finance’ with Bank Negara Malaysia, which will help the Malaysian financial sector classify economic activities transparently and consistently. From this experience, the World Bank Group published a Global Guidance document to help other countries develop their own green taxonomies.
    • Reduced the costs of doing business in Malaysia, through advisory support and workshops provided to the PEMUDAH special task force to facilitate business. 
    • Modernized Malaysia’s indirect tax framework with the extension of the Sales and Services Tax to include digital transitions and helped make the direct tax framework more progressive with the introduction of a new top rate of personal income tax, through advice provided to the Ministry of Finance. 
    • Increased investments in childcare by an additional allocation of about US$7 million and increased incentives for employers and employees to encourage female labor force participation, through close engagement with the Government based on the report Breaking Barriers: Toward Better Economic Opportunities for Women in Malaysia.
    • Conducted numerous capacity building sessions, notably Macro-Econometric Modeling workshops for MOF, technical workshops on the Long-Term Growth Model for economists and policy makers in government, and seminars with academia to build a robust community of policymakers.

    Helping promote South-South knowledge-sharing activities and build the capacities of governments, public agencies, private sector, and academia:   

    • The Malaysia Hub organized and played host to more than 70 knowledge and learning exchanges from over 50 low-income and developing economies from Africa, Asia, Eastern Europe, Latin America and Caribbean.  Some examples include: 
      • Delegates from the Reserve Bank of Zimbabwe visit to Malaysia’s Credit Guarantee Company to learn how to set up a small and medium enterprise (SME) guarantee scheme. This is part of the implementation of the Zimbabwe Financial Inclusion Strategy 2016-2020. 
      • In 2017, the Tanzanian Ministry of Finance and Planning delegation came to understand Malaysia’s SME Masterplan, finance programs and support policy, financial inclusion strategy and implementation, and FinTech regulation.
    • A global symposium for Development Finance Institutions (DFIs) was successfully held and attended by more than 500 participants. It was jointly officiated the Governor of the Central Bank of Malaysia, and Ms. Caroline Heider, World Bank Group Director General and Senior Vice President, Independent Evaluation Group. 
    • Produced a global report titled Enhancing Government Effectiveness: The Fight Against Corruption, which featured 15 case studies on how reformers have overcome persistent public sector management challenges and included analyses and examples of what works in improving policy and interagency coordination, and why it matters for national prosperity.

    Acting as a global and regional convener for Malaysia on economic and development topics:

    • Convened 50 government officials from eight Southeast Asian countries for a technical workshop for the Planning Community of Practice on operationalizing national economic planning.
    • Supported the ASEAN Capital Markets Framework by promoting the ASEAN green bonds standard and issuance and building the pipeline for green and sustainable finance in Malaysia and the region.
    • Organized various platforms for policymakers to deploy Waqf model to address developmental challenges and discuss Islamic Finance solutions to support the United Nations’ Sustainable Development Goals.

    Last Updated: Apr 06, 2021




PHOTO GALLERY

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In Depth

The Digital Economy in Malaysia

In Malaysia’s journey towards achieving greater economic progress, the country could take further steps to unlock the full potential of its digital economy.

Connecting Malaysia’s Islamic and Sustainable Finance to the World

The Hub partners with its Malaysian counterparts in cementing the country’s global leadership in Islamic finance.

Youth Tackles Inequality for Inclusive Growth

Malaysia’s development story is unique and colorful, read how youth are tackling inequality for inclusive growth.

Voluntary Treatment to Fighting Drug Addiction

For people who inject drugs (PWID) in Malaysia, voluntary treatment has been found to be effective in preventing relapses.

Additional Resources

Country Office Contacts

Kuala Lumpur
Level 3, Sasana Kijang, No. 2, Jalan Dato’ Onn, Kuala Lumpur, Malaysia 50480
Tel: +603-2263-4900
malaysia@worldbank.org
Washington DC
1818 H Street NW, Washington, DC 20433
Tel: +1-202-473-4709
eapnews@worldbank.org