Since gaining independence in 1957, Malaysia has undergone a profound economic transformation, transitioning from a predominantly agricultural and commodity-based economy to a robust manufacturing and service sector. This evolution has positioned Malaysia as a leading exporter of electrical appliances, parts, and components, driving remarkable growth that elevated the nation from low- to upper-middle-income status within a single generation.
Key indicators, such as Gross National Income (GNI) per capita, have demonstrated impressive growth, averaging 7.3 % annually between 1961 and 2023. The workforce is increasingly educated, with the share of the workforce having a tertiary education growing from 23% in 2010 to 33% in 2021. Malaysia has also achieved notable success in poverty reduction, with less than 1% of its population living below the international extreme poverty line of US$1.90 a day and only 2.7% below the average poverty line among its upper-middle-income peers at US$5.50. Additionally, the country boasts extensive global trade connections, engaging with 90% of countries worldwide, surpassing many of its regional counterparts.
Healthcare improvements have led to a steady increase in life expectancy, rising from 59 years in the 1960s to 75.2 years in 2024. Malaysia's openness to trade and investment has driven employment creation and income growth, with approximately 40% of jobs linked to export activities. Despite facing challenges such as the Asian financial crisis of 1997-1998, Malaysia has maintained an upward economic trajectory, averaging a growth rate of 5.4% since 2010.
These achievements can be attributed to strategic development policies focusing on outward-oriented, labor-intensive growth, investments in human capital, and credible economic governance to ensure macroeconomic stability. However, as Malaysia prepares for its high-income transition, it confronts new challenges.
The current economic landscape is marked by slower growth, heightened inequality, and a lower proportion of high-skilled employment compared to its peers. Indicators such as wage and productivity growth, tax collection, social spending, environmental management, and corruption control are areas that require attention.
Domestically, there is a growing sense that the middle class's aspirations are not being adequately met, with concerns over job quality and equitable wealth distribution. Trends such as aging and the changing nature of work brought by the advent of new technologies pose challenges to the workforce and the population, particularly as tertiary educated youths struggle to find high-skilled jobs and older workers approach retirement without sufficient savings.
A significant proportion of children in Malaysia are still in learning poverty. Based on OECD 2023 and PISA 2022 scores, 42 percent of those at late primary age are not able to understand an age-appropriate text. These challenges are crucial to understand as Malaysia prepares for its high-income transition.
To address these challenges and compete effectively on the global stage, Malaysia must shift its focus toward broader economic development, emphasizing the quality over quantity of growth. Skills development will be critical to enhance productivity and wage growth, and to address rising skills-related underemployment. Income inequality also remains a significant issue, with targeted measures, such as cash transfers to low-income households, being implemented to alleviate poverty and support vulnerable populations.
Further improvement and investment in social protection, facilitated by enhanced taxation, will position the government well to address such challenges as the country becomes a high-income economy.
Last updated: October 22, 2024
