OECD Urges Malaysia to Pursue New Reforms to Sustain Economic Growth
The Organisation for Economic Co-operation and Development (OECD) has stated that Malaysia requires fresh reform momentum to sustain strong economic growth while bolstering fiscal sustainability and productivity. The institution also underscored the importance of revamping the education sector to ensure the country’s long-term economic competitiveness.
OECD Country Studies Director Luiz de Mello noted that Malaysia’s economic progress in recent years has driven per capita income growth faster than many countries in the region. However, he argued that further reforms are still needed to maintain this growth trajectory.
“To sustain high and resilient growth, Malaysia can optimise public spending and revenue, boost productivity through more pro-competition regulation, and improve learning outcomes at all levels of the education system,” de Mello said during the presentation of the OECD Economic Survey of Malaysia in Putrajaya.
The report projects Malaysia’s Gross Domestic Product (GDP) growth will slow from 5.2% in 2025 to 4.9% in 2026 before rising again to 5% in 2027. This outlook is clouded by several risks, including escalating global trade tensions, commodity price spikes, and weakening global demand. Meanwhile, inflation is projected to rise to 2.1% in 2026 and 2.3% in 2027, up from 1.4% in 2025.
The OECD stressed that strengthening fiscal sustainability is necessary to help control public debt. According to the report, shifting from blanket energy subsidies to more targeted direct assistance would make budget utilisation more efficient.
On the tax front, the OECD assessed that reforms, including the reintroduction of a broad-based consumption tax and the expansion of the personal income tax base, could boost state revenue. The report also recommended expanding means-tested social pension programmes to strengthen social protection amidst an ageing population trend.
Regarding productivity, the OECD encouraged Malaysia to ease various market entry barriers, including foreign ownership restrictions and requirements for cross-border digital services. The institution believes such steps would strengthen Malaysia’s position in global supply chains while promoting knowledge transfer and innovation in the digital economy sector.
The OECD also assessed that business competition would be healthier if the government created a more level playing field between state-owned enterprises and private companies. Furthermore, gradually replacing price control policies with more targeted assistance was deemed capable of improving economic efficiency.
In the education sector, the OECD recommended comprehensive reforms spanning from early childhood education to tertiary level. It suggested that free and compulsory pre-school for children aged three to four could serve as a foundation for improving human capital quality, while performance-based incentives for teachers and greater school autonomy were believed to enhance the quality of primary and secondary education. The OECD also considered aligning higher education curricula with labour market needs as crucial to reducing the workforce skills gap.
The OECD also highlighted the climate change challenges facing Malaysia, including the increasing frequency and intensity of floods. According to the report, an integrated climate adaptation strategy, strengthened climate risk data, expanded disaster insurance protection, and a shift from fossil fuel subsidies towards carbon pricing and accelerated renewable energy investment would strengthen economic resilience while helping to curb emissions.