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

After growing 8.7% in 2022, the Malaysian economy has weathered external challenges and expanded an estimated 4% in 2023. The primary driver for growth was robust private consumption, buoyed by a strong labour market. However, exports to key trading allies have significantly weakened, influenced by diminished external demand and the economic deceleration in China. The International Monetary Fund (IMF) anticipates a modest uptick in growth to 4.3% in 2024, with a stable outlook for 2025. This projection is underpinned by the resilience of private consumption and investment, along with a rebound in public spending.

In 2023, the fiscal deficit contracted, although it remained elevated compared to pre-pandemic years (4.9%, IMF). The reduction in COVID-related spending and a decrease in subsidies, primarily attributed to lower oil prices, played a significant role in lowering public expenditure in the 2023 budget, despite a substantial rise in development expenditure aimed at tackling persistent long-term economic challenges. The 2024 budget is poised to adhere to fiscal consolidation principles, emphasizing the anticipated shift towards targeted fuel subsidies to constrain public expenditure. While persistent public deficits (around 4.5%) may contribute to an increase in public debt, the situation remains manageable, given that a significant portion of the debt is held in local currency by residents. Overall, the debt-to-GDP ratio increased to 66.9% in 2024 (from 65.6% one year earlier) and is expected to remain stable over the forecast horizon. Both headline - estimated at 2.9% in 2023 - and core inflation showed signs of moderation, with the latter decreasing more gradually. Projections suggest a further moderation to 2.7% in 2024; however, uncertainties persist, notably due to subsidy reform considerations.

Malaysia is on track to achieve high-income status by 2026. The country has one of the highest standards of living in Southeast Asia and a low unemployment rate estimated at 3.6% in 2023 (IMF), but the youth unemployment rate is more than triple (11.7%, World Bank) and rural youth is not counted statistically. Despite substantial reductions in poverty and a narrowing of income gaps among ethnic groups over the past five decades, notable regional disparities persist in both income and human capital outcomes in Malaysia. The country's low tax revenues, standing at 12% of GDP, fall significantly below the upper-middle-income country average of 18%. This limited fiscal capacity constrains opportunities for pro-poor initiatives and investments that could spur inclusive growth. Overall, the IMF estimated the country’s GDP per capita (PPP) at USD 37,083 in 2023.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 407.03430.90465.54502.27537.16
GDP (Constant Prices, Annual % Change) 8.74.04.34.44.4
GDP per Capita (USD) 12,46613,03413,91314,83715,691
General Government Balance (in % of GDP) -6.2-4.9-4.5-4.5-4.5
General Government Gross Debt (in % of GDP) 65.666.966.967.067.5
Inflation Rate (%) n/a2.92.72.32.1
Unemployment Rate (% of the Labour Force) 3.83.63.53.53.5
Current Account (billions USD) 12.5211.6413.1514.5615.41
Current Account (in % of GDP) 3.12.72.82.92.9

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 labour force of 16.1 million people out of a 32.97 million population in 2023. Agriculture employs around 10% of Malaysians and contributes to 8.9% of GDP (World Bank, latest data available). 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. Malaysia's crude palm oil production was estimated at around 17.9 million mt-18.5 million mt in 2023, weighed down by lower yields from ageing palm oil trees (S&P).
 
Industry contributes to around 39.1% of GDP and employs nearly 28% of the active population (World Bank). Malaysia is one of the world's largest exporters of semiconductor 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. The country is a major outsourcing destination for components manufacturing, after China and India. It has attracted significant foreign investment, which played a major role in the transformation of its economy. During the initial eleven months of 2023, the Industrial Production Index (IPI) experienced a more moderate growth of 1% compared to the corresponding period in the preceding year (Jan-Nov 2022: 7.1%). This upturn was driven by positive contributions from the electricity (2.3%), manufacturing (0.9%), and mining indexes (0.6%).

The service sector employs the majority of the active population (over 62%) and accounts for 50.9% of GDP (World Bank) 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. Nevertheless, the sector is still recovering from the COVID-19 pandemic: an increase in tourist arrivals in Malaysia in 2023 has led the government to adjust its year-end tourism target for the same year to 19.1 million, up from the initial goal of 16.1 million, and is targeting for tourist arrivals to surpass the pre-pandemic level in 2024.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 9.6 28.3 62.1
Value Added (in % of GDP) 8.9 39.2 50.8
Value Added (Annual % Change) 0.1 6.6 11.3

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.

 

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Political Outline

Current Political Leaders
King: Abdullah Sultan Ahmad Shah (since 24 January 2019)
Prime Minister: Anwar bin Ibrahim (since November 2022)
Next Election Dates
King nomination: 2024
Parliament: 2027
Current Political Context
Malaysian politics has been relatively stable over the last decades. The Barisan Nasional coalition ruled the country since its independence 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 in 2018. The election that took place in 2022 resulted in a divisive political landscape, with none of the three main coalitions – Pakatan Harapan (PH), Perikatan Nasional (PN), and Barisan Nasional (BN) – securing a simple majority. Due to the King’s intervention, PH (81 out 222 parliamentary seats) and BN (30) agreed to form a coalition government, and PH’s leader and long-time leader of the opposition, Anwar Ibrahim (who had spent over two decades in the opposition and 10 years in prison on politically motivated charges), was appointed as the tenth Prime Minister. The alliance was backed by other smaller coalitions and parties (GPS, Warisan, MUDA, and PBM), as well as independent members of Parliament, which enabled Anwar to win a vote of confidence in December 2022.
Malaysia held six state elections in August 2023, resulting in mixed outcomes for the major political parties. The opposition Pakatan Harapan (PH) coalition won three states (Selangor, Penang, and Negeri Sembilan), while the Perikatan Nasional (PN) coalition won two states (Terengganu and Kelantan), and the Barisan Nasional (BN) coalition won one state (Kedah).
Amid escalating tension between the U.S. and China, Malaysia reiterated its non-aligned status through the Foreign Policy Framework of New Malaysia, and maintains its relationship with both countries despite the South China Sea dispute with Beijing, as it is a major trading partner and an important source of investment.
Main Political Parties

Malaysia's 15th general election (GE15) was held on November 19, 2022, amidst a backdrop of political uncertainty and economic challenges. The election resulted in a hung parliament, with no single party or coalition securing a majority of seats. This outcome reflected the deep divisions within Malaysian society and the growing influence of Islamist politics.
The leading parties in GE15 were the Perikatan Nasional (PN) coalition, led by Prime Minister Ismail Sabri Yaakob, and the Pakatan Harapan (PH) coalition, led by former Prime Minister Anwar Ibrahim. PN, which was formed in March 2020, was a loose alliance of parties that included former members of the Barisan Nasional (BN) coalition, which had ruled Malaysia for six decades until 2018. PH, on the other hand, was a more ideologically unified coalition that included parties from the Malay, Chinese, and Indian communities.

The main parties/coalitions represented in the parliament are:
Pakatan Harapan coalition (82 seats):
- People's Justice Party (PKR): centre-left
- Democratic Action Party (DAP): centre-left, social democracy
- National Trust Party (AMANAH): centre-left, Islamic modernism
- Malaysian United Democratic Alliance (MUDA): multi-racial and youth-centric
- The United Progressive Kinabalu Organisation (UPKO): multiracial political party based in Sabah

Perikatan Nasional coalition (74 seats):
- Pan-Malaysian Islamic Party (PAS): Islamist, far-right
- Malaysian United Indigenous Party (BERSATU): centre-right, nationalism
- Parti Gerakan Rakyat Malaysia (Gerakan): centre

Barisan Nasional coalition:
- 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

Other parties:
- Parti Pesaka Bumiputera Bersatu (PBB): right-wing
- Sarawak United People's Party (SUPP): centre
- Progressive Democratic Party (PDP): regionalist.

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 44 are appointed by the Paramount Ruler and 26 are appointed by the 13 state assemblies, to serve three-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

 

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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.

 

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Latest Update: February 2024