Malaysia Needs Fresh Reform Momentum To Strengthen Fiscal Sustainability, Boost Productivity — OECD
PUTRAJAYA, July 28 (Bernama) -- Malaysia needs fresh reform momentum to strengthen fiscal sustainability, boost productivity and improve education to sustain strong and resilient economic growth, according to the Organisation for Economic Co-operation and Development (OECD).
In its latest OECD Economic Survey of Malaysia, the organisation said Malaysia’s gross domestic product (GDP) growth, after expanding 5.2 per cent in 2025, is projected to moderate slightly to 4.9 per cent in 2026 and 5.0 per cent in 2027 amid downside risks from trade tensions, higher commodity prices and weaker global demand.
Inflation is projected to increase to 2.1 per cent in 2026 and 2.3 per cent in 2027 from 1.4 per cent in 2025.
Presenting the survey in Putrajaya alongside Minister of Economy Akmal Nasrullah Mohd Nasir here today, OECD Director of Country Studies Luiz de Mello said Malaysia’s strong economic progress had helped raise per capita incomes faster than in many of its regional peers.
“Malaysia’s strong economic progress has helped raise per capita incomes faster than in many of its regional peers. 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,” he said.
The report said strengthening fiscal sustainability is needed to help contain public debt, adding that shifting from large energy subsidies to well-targeted transfers would lead to more efficient use of public resources.
It said reforming the tax system, including reintroducing a broad-based consumption tax and broadening the personal income tax base, would mobilise additional revenues.
According to the survey, wider coverage of means-tested social pensions would strengthen the social safety net and address longstanding social challenges that are expected to worsen as the population ages.
The OECD also said easing entry barriers, including foreign equity caps and burdensome requirements for cross-border digital services, would spur productivity gains.
It said such measures could further strengthen Malaysia’s role in global supply chains while fostering knowledge transfer and innovation in the digital economy.
The report added that 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.
On education, the OECD said comprehensive reforms are needed at all levels of the education system.
It said free and compulsory preschool education for three- and four-year-olds would lay the foundation for future success, while enhancing teacher performance incentives alongside greater school autonomy and accountability would improve the quality of primary and secondary education.
The report also said aligning tertiary education curricula with labour market needs would help address skills mismatches.
On climate resilience, the OECD noted that Malaysia has faced significant climate-related hazards, including an increasing frequency and intensity of floods.
It said implementing a coherent climate change adaptation strategy, improving the collection of climate risk data and expanding insurance coverage against natural hazards would strengthen the financial resilience of households and businesses.
The organisation also said moving from fossil fuel subsidies to carbon pricing, while accelerating investments in renewable energy, would help reduce emissions.
-- BERNAMA