2019 OECD Economic Surveys: Malaysia 2019

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Malaysia’s economy is doing well, but social and governance challenges must be addressed. The new government prioritises inclusive growth and improving trust in public institutions. Further progress towards the planned target of high-income country status by 2024 will also require focusing on productivity growth with structural reforms to move up the value chain and improve skills. Ensuring environmental protection will improve the quality of growth.

Growth is set to moderate in the near term, mainly due to slowing global trade. The rising cost of living has been a source of concern for large segments of the population. Progress could be made by providing a more targeted support, boosting entrepreneurship, improving productivity and employability among the low-income households.

Fiscal policy needs reform. Building up fiscal space and ensuring medium-term sustainability will require increasing the low level of tax revenue. Improving budget process transparency and strengthening public debt management are key to fiscal accountability.

Human capital development is needed to boost productivity and promote inclusive growth. Labour market imbalances hinder productivity and make it more difficult to climb up the value chain. Investment in education and training would help under-qualified workers. Policies to stimulate the demand for high-level skills would support those who are over-qualified.




Key Policy Insights

Malaysia has performed very successfully in recent years compared to other emerging market countries, with a rapid catching-up towards living standards prevailing in OECD countries. Malaysia’s 2017 per capita GDP (about USD 27 000 in 2011 PPP prices) was close to two-thirds of the OECD average () and exceeded levels in Mexico, Turkey and Chile (Box 1). Thanks to diversification of export products and improved macroeconomic prudence, Malaysia’s resilience to external shocks has strengthened. The country’s Eleventh Five-year Plan (2016-20) set a target of achieving high-income country status by 2020 while ensuring inclusive and sustainable growth. The Mid-Term Review of the Eleventh Plan, announced in October 2018, postponed the target year to 2024 due to recent macroeconomic developments. To achieve the planned target would require to maintain the pace of growth and to focus on productivity gains. High-quality growth requires further efforts towards social inclusiveness and environmental protection.



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