Economic and Political Overview

flag Malaysia Malaysia: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Malaysia is the 4th largest economy of South East Asia and has continued to perform strongly in recent years, due to a strong global demand for electronics, increased demand for commodities, such as oil and gas, an improving labour market, a pro-cyclical budget and ample infrastructure spending. However, the government's declining expenditure as well as lower public and private investments already reduced economic growth to 4.4% in 2019. Due to the COVID-19 pandemic, the growth has been sharply reversed to -5.5% in 2020 but rebounded at 3.1% in 2021 and 5.4% in 2022. The IMF's latest forecast (October 2022) is expecting another strong growth at 4.4% in 2023 and 4.9% in 2024, subject to the post-pandemic global economic recovery.

During the past few years, a political crisis, low oil and commodity export prices and the slowdown in China have deeply affected Malaysia’s economy, putting pressure on the country's finances. Malaysia has the highest debt level in the region, estimated at 69.6% of GDP in 2022 (IMF, October 2022), with spending increasing faster than GDP. Debt levels are expected to remain stable in 2023 and 2024 at 70%.

Due to the economic crisis caused by the Covid-19 pandemic, Malaysia recorded a Government Budget deficit equal to -3.5% in 2020 and -6.5% in 2021 of the country's Gross Domestic Product (Ministry of Finance Malaysia, 2022). It remained at 4.1% in 2022 and is forcasted to stabilised at -3.1% in 2023 and 2024. Future budget measures include a more inclusive economy for the population: increased cash support for low-income families, extra funds for affordable housing projects, more entrepreneurship programmes to elevate lower-income groups and an increase in Malaysia’s competitiveness. The government faces various challenges, including the weakening of the Malaysian currency, the drop in oil prices (since oil revenues account for 30% of state revenue) and the fall in commodity export prices. Inflation went negative in 2020 at -1.1% and then reached 2.5% in 2021 and 3.2% in 2022. It is expected to stabilise at 2.8% in 2023 and 2024 (IMF, October 2022).

Malaysia is on track to achieving high-income status by 2024. The country has one of the highest standards of living in Southeast Asia and a low unemployment rate estimated at 4.5% in 2022 (IMF, October 2022), but the youth unemployment rate is more than triple (15.6%, World Bank, 2022) and rural youth doesn't count statistically. The 11th Malaysia Plan charts a path toward advanced economy status and greater inclusion, through a range of development issues such as equity, inclusiveness, environmental sustainability, human capital development, and infrastructure. Less than 1% of Malaysian households live in extreme poverty. The IMF expects the unemployment rate to stabilise at 4.3% in 2023 and 4.2% in 2024.

In 2023, the country’s most immediate challenge will be to navigate the volatile international context, due to the persistent health and economic effects of a global pandemic and a war in Europe, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

 
Main Indicators 202020212022 (E)2023 (E)2024 (E)
GDP (billions USD) 337.61373.03407.92447.03481.80
GDP (Constant Prices, Annual % Change) -5.53.18.74.54.5
GDP per Capita (USD) 10,36111,45012,36413,38214,250
General Government Balance (in % of GDP) -3.9-4.9-5.5-5.1-4.8
General Government Gross Debt (in % of GDP) 67.769.366.367.067.1
Inflation Rate (%) -1.12.53.42.93.1
Unemployment Rate (% of the Labour Force) 4.54.73.83.63.5
Current Account (billions USD) 14.0714.1710.7711.6613.24
Current Account (in % of GDP) 4.23.82.62.62.7

Source: IMF – World Economic Outlook Database, Latest data available.

Note : (E) Estimated data

 

Main Sectors of Industry

Since gaining its independence in 1957, Malaysia has successfully diversified its economy from agriculture and commodity-based to solid manufacturing and service sectors. It had a labor force of 16.1 million people out of a 32.97 million population in 2022. Agriculture employed around 10% of Malaysians in 2022 and contributed to 9.6% of GDP (World Bank, 2023). Malaysia is the second main producer of palm oil and tropical wood, and the fifth largest exporter of rubber. The country has successfully developed its economy based on raw materials and has significant reserves of oil, gas, copper and bauxite.

Industry contributed to around 37.8% of GDP and employed nearly 27% of the active population in 2022 (World Bank, 2023). Malaysia is one of the world's largest exporters of semi-conductor devices, electrical goods and appliances, and the government has ambitious plans to make the country a key producer and developer of high-tech products, including software. Malaysia is a major outsourcing destination for components manufacturing, after China and India. The country has attracted significant foreign investment, which has played a major role in the transformation of its economy.

The service sector employs the majority of the population (over 63% in 2022) and accounts for 52.6% of GDP (World Bank, 2023) which is due mainly to healthcare services, transport, distributive trade and tourism. Tourism was the third biggest contributor to Malaysia’s GDP, after manufacturing and commodities, with over 7% of GDP and 26.1 million foreign tourists in 2019, according to Tourism Malaysia. Over the years, Malaysia has become one of Southeast Asia's major tourist destinations, and since 2020 the country was waiting for the world's borders to open again to international travel. The borders are now open and tourists are slowly making their way to Malaysia in 2023.

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.  Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024 (International Monetary Fund - IMF, 2023). The impact of the 2022 world events appears to have affected both sides of most sectors and markets in this country for the third year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 10.3 27.0 62.7
Value Added (in % of GDP) 9.6 37.8 51.6
Value Added (Annual % Change) -0.2 5.6 1.9

Source: World Bank, Latest data available.

 

Find more information about your business sector on our service Market Reports.

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
74,4/100
World Rank:
22
Regional Rank:
5

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
7.24/10
World Rank:
27/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.

 

Return to top

Political Outline

Current Political Leaders
King: King Sultan ABDULLAH Sultan Ahmad Shah (since 24 January 2019)
Prime Minister: Anwar bin Ibrahim (since November 2022)
Next Election Dates
King nomination: 2024
Parliament: September 2023
Current Political Context
Malaysian politics has been relatively stable over the last decades. The Barisan Nasional coalition ruled the country since its independency from Britain in 1957, but it lost its hold of the parliament for the first time in Malaysian history in the general election which was held on 9 May 2018. Former Prime Minister Mahatir Mohamad returned to the office as the leader of the Pakatan Harapan centre-left four-party coalition 15 years after his first tenure. Muhyiddin Yassin was appointed prime minister in February 2020 and was able to form the National Alliance coalition with Malay-majority parties dominating the government. Tested by one of the largest pandemics in recent history, and despite relatively sound management of the crisis, Muhyiddin position in the new government coalition (Perikatan Nasional) was complex vis-à-vis the weight and popularity of United Malays National Organisation (UMNO), the old ruling party he allied with. Amid a political crisis and after losing a majority of support in parliament, he resigned in August 2021 and was replaced by Ismail Sabri Yaakob.
The government reiterated its non-aligned status through the Foreign Policy Framework of New Malaysia, especially when dealing with China and the United States.

Prime Minister Ismail dissolved parliament in October 2022 setting the stage for the country’s 15th general elections to be held on November 19. The tightly contested elections led to a hung parliament and a week of tension before Malaysia’s king swore in Anwar Ibrahim as the country’s 10th prime minister on November 24. The new parliament opened on December 19, passing a confidence motion for Anwar, who had spent over two decades in the opposition and 10 years in prison on politically motivated charges. Manoeuvrings by Malaysia's King Abdullah have led to the formation of a unity government led by Anwar Ibrahim, the leader of the multicultural Pakatan Harapan (PH) coalition. His government will be supported by pro-Malay political parties, circumscribing his ability to contain Malaysia's tradition of ethnic preferences for the Malay majority. The outcome of the general election held on November 19th showed that the PH coalition won 82 seats (out of 222); the Perikatan Nasional coalition secured 73 seats and the Barisan Nasional coalition won 30 seats. The new government will initially prioritise economic issues amid an economic slowdown, with the 2023 budget to be adjusted and retabled in parliament before the year-end.
Main Political Parties
The Barisan Nasional coalition, in charge since 1957, was defeated in historical general elections in April 2018 and most of the parties left the coalition. The election was won by Pakatan Harapan, an opposition party led by Mahathir Mohamad, who had already been Prime Minister of Malaysia from 1981 to 2003. At the age of 92, Mahatir Mohamad became the oldest head of government in the world.

Barisan Nasional:
- United Malays National Organisation (UMNO): right-wing, known for being a major proponent of Malaysian nationalism
- Malaysian Chinese Association (MCA): right-wing, represents Malaysian Chinese contingency
- Malaysian Indian Congress (MIC): right-wing
Pakatan Harapan:
- Democratic Action Party (DAP): centre-left, social democracy
- People's Justice Party (PKR): centre-left
- Malasyan United Indigenous (BERSATU): centre-right, nationalism
- National Trust Party (AMANAH): centre-left, Islamic modernism
Other parties:
- Parti Gerakan Rakyat Malaysia (Gerakan): centre
- Parti Pesaka Bumiputera Bersatu (PBB): right-wing
- Parti Rakyat Sarawak (PRS): centre
- Parti Bersatu Sabah (PBS): centre, multi-racial
- Sarawak Progressive Democratic Party (SPDP)
- United Pasok Momogun Kadazandusum Organisation (UPKO): right-wing
- Sarawak United People's Party (SUPP): centre
- Parti Bersatu Rakyat Sabah (PBRS): nationalist-oriented

Type of State
Malaysia is a multiparty federal parliamentary monarchy operating under the Westminster system. The country comprises of 13 states which enjoy a fair amount of federal decentralization.
Executive Power
The head of state is the Paramount Ruler, commonly referred to as the King. The King is selected from nine hereditary rulers (called Sultans) of the Malay states to serve a five-year term; the other four states (which have titular Governors) do not participate in the selection. Following legislative elections, the leader of the party that wins most seats in the lower house of the parliament becomes the Prime Minister to serve a five-year term, subject to approval by the King. The Prime Minister is the head of Government and holds the executive powers which include implementation of the law and running the day-to-day affairs of the country. The Cabinet is appointed by the Prime Minister from among the members of parliament with the consent of the Paramount Ruler.
Legislative Power
The legislature in Malaysia is bicameral. The parliament consists of the Senate (the upper house) with 70 seats, out of which 40 are appointed by the Paramount Ruler and 26 are appointed by the 13 state assemblies, to serve six-year terms; and the House of Representatives (the lower house) with 222 seats, its members elected by popular vote to serve five-year terms. The King can dissolve parliament if he wishes, but usually only does so upon the advice of the Prime Minister. In general, more power is vested in the executive branch of government than in the legislative branch. Legislative power is divided between federal and state legislatures. Each state has its own Government, a cabinet with executive authority, and a legislature that deals with matters not reserved for the federal parliament.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
119/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Partly Free
Political Freedom:
4/7
Civil Liberties:
4/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

Return to top

COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For the general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and macroeconomic) undertaken by the government of Malaysia, please consult the country's dedicated section in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

 

Any Comment About This Content? Report It to Us.

 

© eexpand, All Rights Reserved.
Latest Update: September 2023