SUMMARY
NEW - Technology is an increasingly important driver of economic success, and we are now including a separate Technology sector in our quarterly country risk reports and integrating the core into our overall score.
Overall Risk Score 32/40 (Stable)
Political risk: Stable 8/10
Economic risk: Stable 8/10
Commercial risk: Stable 8/10
Technology risk: NEW Stable 8/10
The risk assessment of a country is made up of 4 components, being Political, Economic, and Commercial and Technological. Each component is scored out of 10 with 1 being the highest risk and 10 the lowest.
ESG Risk: 8/10 (Stable)*
*Environmental, social and governance (ESG) issues are becoming increasingly important to companies, investors and consumers in Southeast Asia. That is why we are now preparing a separate ESG score and section with our quarterly country risk reports. We explain how each country rates, looking at the E, S and G individually, and outline recent developments.
Political Risk – Stable at 8
Malaysia consists of two regions, peninsular Malaysia and the states of Sabah and Sarawak, which lie on the island of Borneo. It is a multi-ethnic, multi-religious federation encompassing a majority ethnic Malay population in most of its states and an economically powerful Chinese community. Ethnic Indians are the next largest group in the country. Since 1971 Malays have benefited from positive discrimination in business, education and the civil service.
Malaysia appears to have finally entered calmer political waters after experiencing significant political turbulence since 2018. It is also on course to transition from entrenched dominant-party rule to a competitive, multi-party democracy.
The United Malays National Organisation (UMNO) dominated the political environment from independence in 1957 until 2018, when it was ejected from office amid corruption scandals. Veteran politician Anwar Ibrahim became the country’s fifth prime minister in less than five years in November 2022.
In November 2024, Anwar completed his second year in power – longer than his three predecessors – with no immediate challenger in sight. The country’s recent political stability, strong economic recovery and growing importance as a hub for artificial intelligence (AI) infrastructure investments augur well for 2025. Moreover, Anwar will not face any significant elections until December 2025, when the Sabah legislative assembly election is due to take place.
Anwar’s government – formed of his progressive coalition, one-time rival UMNO, East Malaysian parties, and a number of smaller parties – appears to be maintaining its cohesion. Meanwhile, divisions within the opposition coalition Perikatan Nasional have widened substantially.
Economic Risk – Stable at 8
Once dependent on commodities, Malaysia has a diversified economy, with services accounting for around half of GDP and manufacturing another quarter. Agriculture and mining account for much of the remainder. Malaysia is also one of the most open economies in the world, with a trade-to-GDP ratio averaging over 130% since 2010. Openness to trade and investment has been instrumental in employment creation and income growth, with about 40% of jobs in Malaysia linked to export activities, according to the World Bank.
The economy performed strongly in 2024, with low and stable inflation, according to the IMF, which completed an Article IV Mission to Malaysia in December. It estimated growth at around 5%. The IMF said that an uncertain global outlook, “including external risks from deeper geoeconomic fragmentation”, could cause growth to weaken in 2025. However, it added that the faster-than-envisaged implementation of large investment projects in Malaysia could accelerate growth.
Malaysia has emerged as a surprise winner from the trade tensions between the US and China. The country aggressively courted American and Chinese firms with tax breaks and other incentives during Trump’s first term as president, attracting multi-billion-dollar investments from companies such as Texas Instruments and Lam Research of the US, and Alibaba and Geely of China.
Trump’s return to the White House could prove equally fruitful for Malaysia, with the country planning to turn its southern tip into a hub for multinational companies looking for a safe haven. It has signed an economic agreement with Singapore, which would see the establishment of a special Malaysian economic zone where companies will be given financial incentives to build factories.
The establishment of a special Malaysian economic zone could give a boost to already-soaring foreign direct investment (FDI). It has been reported that Malaysia attracted RM21.3 billion (US$4.8 billion) of FDI in the first half of 2024, compared with RM12.1 billion (US$2.7 billion) in the same period of 2023.
Commercial Risk – Stable at 8
Malaysia benefits from good infrastructure, an English-speaking business and consumer environment, and a well-established legal framework. However, the implementation of national policies varies from state to state, with Kuala Lumpur regarded as the easiest place in which to conduct business.
Corruption remains a challenge: Malaysia ranked 57th among 180 countries in Transparency International’s Corruption Perceptions Index (CPI) for 2023, moving up four places over the year. Transparency International, the global anti-corruption coalition, argues that Malaysian politicians continually fail to combat corruption because influence and alliance-building trump accountability. Bribery is perceived as a standard business practice, while 71% of Malaysians believe officials are highly corrupt, according to a report by The Diplomat.
In its December 2024 Article IV assessment press release, the IMF said that the financial sector remains sound, adding that banks’ capital and liquidity positions are robust. Credit growth, corporate and household balance sheets, and real-estate markets would not pose systemic risks, explained the IMF. However, it said that continued vigilance was warranted against pockets of more highly leveraged borrowers, interlinkages between banks and non-bank financial institutions, and climate and cyber risks.
NEW
Technology Risk – Stable at 8
The Global Innovation Index (GII), from the world Intellectual Property Organization, is an important index used by countries and multinational companies to assess innovation ecosystems and aid in policymaking and investment decisions.
Malaysia ranked 33rd out of 133 countries in the 2024 GII – its highest achievement since 2016. Notably, it also ranked as the second-highest upper-middle-income country in 2024, after China.
Malaysia also ranked in 15th position globally and third in the ASEAN region in the 2023 ICT Development Index (IDI), published by the International Telecommunication Union (ITU). Malaysia has made rapid progress in recent years – it ranked 64th out of 167 economies in the 2015 ranking.
Government policies
The government is committed to the development of its digital infrastructure, including an expansion of broadband and 5G connectivity, and building up data centres for cloud computing and AI, to boost its competitiveness in the ASEAN region.
Initiatives include the Digital Ecosystem Acceleration (DESAC) initiative and the New Industrial Master Plan 2030 (NIMP 2030), which aim to encourage businesses to embrace digital transformation and develop the nation’s digital literacy and economy.
NIMP 2030 targets these key areas: digital and ICT services, global services, and professional services, as well as manufacturing-related services. In digital services, it aims to create 3000 smart factories by 2030 by integrating advanced technology, leveraging data for strategic insights, and delivering personalized services.
As a result of Malaysia’s development of its digital infrastructure, it is rapidly emerging as a regional tech powerhouse, with major companies choosing the country as a base for their cloud computing networks. The Silicon Valley giants Google, Microsoft, Amazon Web Services and Nvidia are pouring billions into the country, signalling a transformative era for Malaysia’s digital landscape.
Infrastructure
The country benefits from stable mobile internet connections, improved transmission speeds, and fixed internet stability. The IDI 2023 report found that Malaysia had achieved near-universal coverage of 4G or LTE mobile networks, high mobile-broadband subscriptions, and affordable prices for mobile and fixed broadband services, as well as high rates of internet usage, mobile-phone ownership and internet traffic.
Education and skilled staff
Over the past 20 years, the education system has focused on science, engineering and maths-related subjects. Malaysia now has one of the highest levels of STEM graduates in the world. Highly skilled expats are also moving to the country, lured by its low cost of living and low taxes. However, Malaysia is still failing to produce enough skilled workers to meet demand. The semiconductor industry, for example, currently faces a severe shortage of talent, with around 50,000 skilled engineers needed, while Malaysian universities are producing only about 5,000 engineers annually.
As part of Malaysia’s labour-market reforms, the government launched the Academy in Industry programme in 2023, subsidising training for school leavers to meet industry needs. Universities and colleges are also working closely with tech companies to ensure that the curriculum aligns with industry requirements.
February Bulletin
Political Risk – Stable at 8
Failure to press ahead with economic and political reforms could prove to be Anwar Ibrahim’s political Achilles heel. Education is a key area where reform is needed. Malaysian students’ poor performance in the 2022 Programme for International Student Assessment (Pisa), which evaluates 15-year-old students on subjects like maths, science and reading, has prompted considerable debate in Malaysia on why the score proved so low.
One problem is that politicians have switched back and forth over the past 20 years on how much emphasis should be placed on learning English. Another is that 16% of curriculum time at primary school is dedicated to religious education, compared with 12% for maths, and 7% each for science and arts. The hours devoted to religious studies, including Arabic, have increased steadily since the mid-2000s. Malay parents are increasingly choosing private schools or Chinese vernacular schools, rather than national schools, as a result.
The education system has also failed to discipline incompetent and underperforming teachers. Anwar is trying to tackle the latter issue. In July, he warned that negligent, undisciplined and underperforming teachers would not automatically receive promotions as in the past. The Education Ministry is also planning to implement a new curriculum in 2027, with more emphasis on STEM education.
Economic Risk – Stable at 8
While the IMF is forecasting growth of 5% in 2024, government officials are more bullish, with projections of a 5.3% expansion. In mid-November, the Finance Ministry added that it expects a further improvement in 2025 as it looks to raise minimum wages and position the nation as a neutral haven for global investors. This is as Donald Trump assumes the US presidency and potentially implements trade tariffs against China.
In its 2025 budget, announced in November 2024, the government introduced measures to help reduce the country’s deficit to 3.8% of GDP in 2025, from 4.3% in 2024. The budget focused on expanding the scope of existing taxes and outlined a plan to launch a new Investment Incentive Framework to attract high-value investments. The government aims to reduce the budget deficit to under 3% of GDP within a few years. This will be achieved through a mix of economic growth, increased revenue, and cuts to certain public expenditure.
Government revenue is set to increase by around US$4 billion next year, reflecting reforms that have widened the country’s tax base. Officials forecast that tax revenue will rise by 7.5% in 2025, much of it driven by sales, service and corporate taxes. Currently, the plan is to expand the sales and service tax further in the middle of 2025. At the same time, the government is cutting spending on social assistance and subsidies by an expected 14%, after a reduction of 15% in 2024. Spending on social assistance and subsidies rose sharply during and after the COVID-19 pandemic.
Inflation is projected to average between 2% and 3.5% in 2025, according to figures from Malaysia’s central bank, Bank Negara Malaysia. Headline and core inflation remained modest in 2024, averaging 1.8% over the year ending in October. Unsurprisingly, the central bank left its benchmark interest rate unchanged at 3% in November. Borrowing costs were last changed in May 2023 and could remain stable in 2025.
Commercial Risk – Stable at 8
Analysts at the Singapore-based financial services provider CGS International issued a positive report on the banking sector in November, arguing that the financial reserves set aside for potential loan defaults held by Malaysian banks are likely to enhance profits through strategic write-backs. These write-backs – where the book value of an asset is increased to bring it back in line with current market value – are thought particularly likely as economic stability improves. CGS also expects stronger net interest margins and potential dividend increases to bolster the banking sector’s performance.
In November, Bank Negara Malaysia said it was liberalising its foreign-exchange policy for international financial institutions, to support investments in Malaysia. Multilateral development banks and foreign financial firms can now issue ringgit-denominated debt securities for funding in Malaysia, and can provide ringgit financing to resident corporates.
Technology Risk – Stable at 8
Malaysia is emerging as a data-centre powerhouse in Southeast Asia, and in Asia more generally, as demand surges for cloud computing and AI. In November, Telekom Malaysia announced it would expand its core data centres in Cyberjaya and Johor to serve growing demand for domestic and international data hosting services. Telekom Malaysia already operates seven data centres in the country, which is home to a total of 73 data centres.
Environmental, Social and Governance (ESG) - Stable at 8
The United Nations’ Sustainable Development Goals (SDGs) are recognized as a beneficial framework for responsible investment. The Sustainable Development Report from Cambridge University Press assesses the progress of all UN Member States on the SDGs. It provides a useful means of ranking Southeast Asian countries on their ESG progress.
Malaysia is ranked 79 out of 166 in the 2024 report, with a score of 69.3.
Environment: Malaysia faces a number of environmental challenges, including air and water pollution, deforestation and flooding. The country is committed to keeping 50% of its land area under forest – currently the figure is 54%. High levels of air pollution reach crisis levels every year during the dry season as smoke from fires to clear land for palm oil and pulp and paper plantations in Indonesia blankets much of Malaysia.
In August, Malaysia scrapped a plan to send orangutans overseas in an emulation of China’s “panda diplomacy”. The U-turn won praise from environmentalist organizations, including the World Wide Fund for Nature, which said the decision was “not just a win for wildlife conservation but also a crucial step towards balancing economic growth with environmental sustainability”.
Social: The US State Department’s 2023 report on Malaysia says that, unlike in previous years, “there were no reports the government or its agents committed arbitrary or unlawful killings, including extrajudicial killings, during the year”.
Governance: Malaysian public-listed companies are faring well in ESG factors among their ASEAN peers based on leading ESG indicators including disclosure and commitments to sustainability practices, according to an April 2022 report by PwC.
February Bulletin
Environmental, Social and Governance (ESG) - Stable at 8
At a joint conference in October 2024, the Securities Commission and the World Bank unveiled a report titled “ESG Disclosure Assessment of Malaysia’s Listed Companies and Recommendations for Policy Development”. The assessment established a baseline for ESG reporting practices among Malaysian listed companies, aiming to align these with international standards and enhance global competitiveness, according to the Bond and Sukuk Information Exchange.
Latest economic data
f forecasts
* Worldbox Intelligence
** Statista
Source: International Monetary Fund, official figures, except where stated
Useful Links
https://www.imf.org/en/Countries/MYS
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