The OECD Economic Survey of Malaysia 20241 provides an in-depth analysis of the country’s economic trends, offering policy recommendations and insights into recent structural developments.
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Despite the ongoing impacts of the COVID-19 pandemic, supply chain disruptions, and geopolitical tensions such as Russia’s war of aggression against Ukraine, Malaysia’s economy has demonstrated remarkable stability, driven by strong domestic demand, low unemployment, and moderate inflation.
As Malaysia approaches high-income status, the report highlights the need for comprehensive reforms and targeted actions to ensure sustainable development.
The recommendations include revamping the tax system to bolster fiscal stability, empowering micro, small, and medium enterprises (MSMEs) to drive innovation and competitiveness, and strengthening social protection programs to address poverty and inequality. Additionally, the report also highlights the importance of robust climate action strategies, including phasing out fossil fuel subsidies and implementing carbon pricing, to build resilience against environmental challenges.
Economic Growth and Stability
The report projects a positive economic outlook, with Malaysia’s GDP expected to grow by 4.9% in 2024 and 4.7% in 2025, a significant improvement from the 3.6% growth recorded in 2023. This acceleration is largely attributed to surging domestic demand and a recovery in exports, particularly in the electronics sector. The prudent monetary policies in place are expected to keep inflation stable at around 2.8% in 2024 and 2.7% in 2025, which further reinforces the country’s economic stability.
Fiscal Consolidation and Social Equity
One of the key challenges identified in the report is the need for Malaysia to continue its fiscal consolidation efforts, which became more pressing following the pandemic-induced fiscal deficit. While the government’s intervention during the pandemic was necessary to mitigate economic fallout, the report stresses the importance of phasing out subsidies and raising additional revenues through targeted tax reforms and enhanced tax administration. This approach is essential for managing rising public spending pressures, particularly in social protection, education, health, and long-term care.
The report also underscores the importance of improving social equity across Malaysia. While the country has made significant strides in reducing poverty, there is still a need to better target social assistance programs, particularly government subsidies, to ensure they benefit the most vulnerable populations. Expanding pension coverage and aligning tertiary education with labor market needs are also crucial steps towards achieving greater inclusivity and enhancing productivity.
MSMEs Empowerment
One of the OECD’s recommendations is focus on empowering micro, small, and medium enterprises (MSMEs), as it could play a crucial role in helping Malaysia achieve high-income status. By streamlining support, encouraging digitalisation, and diversifying access to finance such as equity crowdfunding and peer-to-peer financing, the report suggests that Malaysia can significantly enhance SME productivity. Additionally, reducing market regulations could foster competition, enabling SMEs to scale up and become successful exporters, thereby contributing to the country’s sustainable economic growth.
Climate Action and Resilience
Phasing out fossil fuel subsidies and introducing carbon pricing are identified as critical measures for reducing greenhouse gas emissions and steering the economy towards a low-carbon future. The report also highlights the importance of developing a disaster risk finance and insurance framework to bolster Malaysia’s resilience against climate-related events such as floods, heatwaves, and storms, which are becoming increasingly frequent and severe.
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The Organisation added that it is important to attract more private venture capital by improving tax incentives and the legal and regulatory framework.2
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These strategies are crucial for Malaysia to achieve balanced and inclusive growth while preparing for future economic and environmental shifts.
Growth must be inclusive, and no one must be left behind.
References
- OECD Economic Survey 2024. ↩︎
- OECD urges Malaysia to revamp tax system to sustain growth, generate more revenue. Bernama ↩︎
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Last updated: 25 Aug 2024
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