Malaysia’s economic growth has been strong and resilient, with incomes converging towards OECD countries. New reform momentum is needed to strengthen fiscal sustainability, boost productivity, and improve education, according to a new OECD report.
The latest OECD Economic Survey of Malaysia shows that, after growth of 5.2% in 2025, GDP growth is expected to slightly moderate to 4.9% in 2026 and 5.0% in 2027, amid downside risks from trade tensions, higher commodity prices, and weaker global demand. Inflation is projected to be 2.1% in 2026 and 2.3% in 2027, up from 1.4% in 2025.
“Malaysia’s strong economic progress has helped raise per capita incomes faster than in many of its regional peers,” OECD Director of Country Studies Luiz de Mello said, presenting the Survey in Putrajaya alongside Malaysia’s Minister of Economy Akmal Nasrullah Mohd Nasir. “To sustain high and resilient growth, Malaysia can optimise public spending and revenues, boost productivity through more competition-friendly regulation, and enhance learning outcomes at all levels of the education system.”
Strengthening fiscal sustainability is needed to help contain public debt. Shifting from large energy subsidies to well-targeted transfers would lead to a more efficient use of public resources. Reforming the tax system, including by re-introducing a broad-based consumption tax and broadening the personal income tax base, would mobilise additional revenues. A wider coverage of means-tested social pensions would bolster the social safety net and address longstanding social challenges, which are set to be exacerbated by population ageing.
Easing entry barriers, such as foreign equity caps and burdensome requirements for cross-border digital services, would spur productivity gains. This could further strengthen Malaysia’s role in global supply chains and foster knowledge transfer and innovation in the digital economy. Creating a more level playing field between state-owned enterprises and private firms, as well as phasing out price controls in favour of targeted support, would boost competition.
Comprehensive reforms are necessary at all levels of the education system. Free and compulsory preschool education for three- and four-year-olds would lay the ground for future success. Enhancing teacher performance incentives in combination with greater school autonomy and accountability would improve the quality of primary and secondary education. Aligning tertiary education curricula with labour market needs would mitigate skills mismatches.
Malaysia has faced significant climate-related hazards, including an increasing frequency and intensity of floods. In addition to implementing a coherent climate change adaptation strategy and enhancing the collection of climate risk data, expanding insurance coverage against natural hazards would bolster financial resilience of households and businesses. Moving from fossil fuel subsidies to carbon pricing, as well as accelerating investments in renewable energy, would help reduce emissions.
