Worldbox Country Risk Climate February 2026
MALAYSIA
Summary
| Overall Risk Score 24/40 (Stable)
Political risk: Stable 8/10 Economic risk: Stable 8/10 Commercial risk: Stable 8/10 Technology risk: Stable 8/10 The risk assessment of a country is made up of 3 components, being Political, Economic and Commercial. 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 2025, Anwar completed his third year in power – longer than his three predecessors – with no immediate challenger in sight. Anwar’s longevity has surprised many commentators who believed the government he formed in 2022 would not last longer than a year. Anwar’s government – formed of his progressive coalition, one-time rival UMNO, East Malaysian parties, and a number of smaller parties – maintained its cohesion in 2025 and the outlook for 2026 remains positive. Indeed, Malaysia is now regarded as one of the most stable countries in the region, a remarkable turnaround from the situation of just a few years ago.
The government does face some challenges, but the next general election is not due until 2028. The chief concerns of Malaysia’s voters include rising living costs and corruption. In October 2025, a survey found that 77% of Malaysians struggled to keep up with daily expenses. The study found that prices of food and beverages have surged by 17.5% since 2020 – nearly twice as fast as the overall inflation rate. The government in recognition of these difficulties introduced a raft of subsidies in July 2025 and in its October 2025 budget for 2026 extended these subsidies.
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.
Malaysia’s 13th Malaysia Plan (covering 2026-2030) is a national roadmap focused on “Redefining Development”. It was introduced in August 2025. The plan is driven by two key pillars:
- Raise the Ceiling – enhancing Malaysia’s position as a leading economy in Asia.
- Raise the Floor – ensuring improved quality of life and income opportunities for Malaysians.
The central ambition of the plan is for Malaysia to become a regional leader in artificial intelligence (AI), digital technology, and renewable energy. The government aims to invest in talent development, cutting-edge research, and the commercialisation of AI solutions to accelerate adoption across industries. It is also intensifying green economy initiatives, and is exploring the development of nuclear energy as a competitive energy alternative for the country.
The plan calls for a GDP growth target of 4.5% to 5.5% annually and requires a total investment commitment of RM611bn (US$149bn), with RM430bn allocated for federal development expenditure.
Malaysia 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.
Having initially imposed a 24% tariff on Malaysia, President Trump subsequently reduced the tariff to 19%, one of the lowest in the region. Trump’s April 2025 decision to impose a tariff of 24% was subsequently reduced to 19% in August. However, Malaysia’s effective tariff burden is closer to 12–13% due to preferential trade agreements and exemptions, giving Malaysian exporters a competitive edge over regional peers facing higher effective tariffs.
Trump’s visit to Malaysia in October 2025 also resulted in the signing of various trade deals, including one on critical minerals. In particular, Malaysia pledged not to impose bans or quotas on shipments of critical minerals to the United States, even as it maintains its domestic moratorium on raw rare-earth exports, which took effect at the start of 2024.
The country is planning to turn its southern tip into a hub for multinational companies looking for a safe haven on the boarder with Singapore. Both countries signed an agreement in January 2025 to create the Johor-Singapore Special Economic Zone (JS-SEZ). The zone is expected to create 20,000 skilled jobs for people on both sides of the Causeway. In December 2025, Malaysia announced plans to develop Sedenak Tech Park West (StepWes) at the Ibrahim Technopolis (IBTEC), a sandbox where companies can test solutions in a live environment before scaling regionally. StepWes is being positioned as the next landing spot for Singapore-based data centre and logistics players who are feeling the squeeze of rising land costs across the border. The developer, JLand Group, is targeting around RM40 billion (S$12.6 billion) in new investments at StepWest over the next three year.
Malaysia attracted foreign direct investment (FDI) investments of 378.5bn ringgit ($85.8 billion) in 2024, a record figure and up by 14.9% from the previous year. The US was Malaysia’s top foreign investor with a combined 32.8 billion ringgit, followed by Germany 32.2 billion ringgit, China’s 28.2 billion ringgit and Singapore’s 27.3 billion ringgit. The services sector received 66.8% of the investments.
Money continues to pour into the country despite the global headwinds. In the first nine months of 2025, FDI increased by 13% over the same period of last year to RM 285.2bn (US$69.69bn). The services sector dominated with RM187.9 billion (65.9%), followed by manufacturing at RM93.8 billion (32.9%), and the primary sector at RM3.5 billion (1.2%).
Officials said that the strong figures reflected the country’s competitive fundamentals and the industrial clusters being developed under the New Industrial Master Plan 2030. They said that the figures also demonstrated the government’s success in fostering public-private collaboration and positioning the country as a regional hub for advanced manufacturing and sustainable industries. Singapore accounted for the largest share of FDI at RM52.7 billion, followed by China (RM35.8 billion), and the USA (RM11.3 billion).
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 2024, the same rank as the previous 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.
The Heritage Foundation ranked Malaysia as the 44th freest economy in its 2025 Index of Economic Freedom. The country scored 67.1, an increase of 1.4 points from last year. Malaysia is ranked 7th out of 39 countries in the Asia-Pacific region. The country’s economic freedom score is higher than the world and regional averages. Malaysia’s economy is considered “moderately free” according to the 2025 Index.
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.
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 34th out of 139 countries in the 2025 GII and ranks 8th among the 17 economies in South East Asia, East Asia, and Oceania. It ranks 2nd among the 36 Upper middle-income group economies.
Government policies
The government‘s 13th Malaysia Plan, released in August 2025, sets ambitious technological targets. The government aims for AI adoption to be integrated across key sectors including manufacturing, agriculture, healthcare, education, finance, security, housing, and public services.
In manufacturing, for instance, AI-powered integrated automation, predictive analytics, and robotics will enhance the production of high-value goods. In agriculture, applications such as precision crop monitoring and real-time weather forecasting aim to improve yields and reduce reliance on foreign labour.
The plan aims to expand to 5G coverage to 98% of residential, industrial and rural areas by 2030. The push for digital transformation calls for 95% of federal public services to be delivered entirely online by 2030. Additionally, a unified public sector gateway will be developed to streamline interactions between citizens and government agencies, aiming to improve efficiency and accessibility.
A National Digital Trust and Cybersecurity Strategy will be launched to focus on strengthening data protection, countering cyber threats, and preserving Malaysia’s digital sovereignty.
Infrastructure
The World Bank ranks Malaysia 2nd in Southeast Asia for infrastructure quality. Investments – amounting to RMB 400bn (US 95bn) alone during the 2021-25 development plan – focus on transportation, utilities, and digital infrastructure, solidifying Malaysia’s position as a regional leader.
The 2026-30 plan also involves heavy investment in infrastructure including a RM43bn grid upgrade to add storage and smart control so the energy system can support heavy industrial loads and rising data centre demand. The Plan also encompasses a National Semiconductor Strategy that aims for a cumulative investment of RMB 500bn with RMB25bn in public support across the phases.
Other key infrastructure projects covered by the plan include the completion of the Klang Valley MRT3 Line, expansion of interstate highways like the West Coast Expressway and Pan Island Link 1, and the East Coast Rail Link (ECRL) corridor development with associated industrial parks and the Johor Singapore Special Economic Zone.
Education and skilled staff
The government has recognised that education is a weakness in its plans to develop a technologically-advanced economy. The 13th Malaysia Plan, announced in August 2025 allocated RM 67bn (US$ 16.4bn to reforming the education sector. The plan calls for reforms to be implemented across all levels – from preschool to tertiary.
Key education initiatives include:
- Integration of science, technology, engineering, and mathematics (STEM), digital literacy, and basic AI into school curricula to prepare students for emerging industries.
- Revamping technical and vocational education and training (TVET) programmes to focus on high-growth, high-value sectors and advanced technology.
- Enhancing teaching standards and assessment systems, including tailored support for special and gifted students.
- Rolling out a pilot programme for public university autonomy, enabling institutions to improve their financial sustainability and global competitiveness.
- Introducing a framework to track graduate outcomes to address skills mismatches and reduce underemployment.
- Launching a mandatory paid internship scheme, particularly involving small and medium-sized enterprises (SMEs), to provide students with practical industry experience.
To coordinate these wide-ranging reforms, a National Education Council will be established to guide policy, monitor progress, and ensure alignment with national goals.
February Bulletin
Political Risk – Stable at 8
The dominance of local parties in Sabah’s legislative elections in November signalled that Malaysian politics is realigning toward state-based groups and decentralized power, according to a report in Nikkei Asia. The vote resulted in a hung assembly, with incumbent Chief Minister Hajiji Noor’s Gabungan Rakyat Sabah (GRS) winning the most seats, 29 out of the 73. Noor, who supports Anwar, swiftly formed a coalition government with other parties, including the prime minister’s People’s Justice Party (PKR), to ensure a sense of continuity.
However, other parties based in peninsular Malaysia fared poorly, including parties that belong to the ruling coalition as well as those in the opposition. Nikkei Asia quoted Hisommudin Bakar, director of the Ilham Center think tank, as saying that the results mirror a broader frustration that has been simmering for some time over the government’s slow pace on corruption reforms and economic decisions that have alienated key segments of society.
The vote reaffirmed the rise of state nationalism in Sabah and Sarawak, the other Malaysian state on Borneo, according to James Chin, professor of Asia studies at the University of Tasmania. Nikkei Asia quoted Chin as noting that “90% of the vote went to Sabah-based parties, or parties that have no branches outside Sabah.”
The results according to Nikkei Asia highlight the fragmented nature of national political trends where no coalition will be able to form a government without support from East Malaysian blocs. The Sabah outcome offers a preview of how pivotal Sabah and Sarawak will be in determining the next federal administration and shaping national policy priorities, it concluded.
Economic Risk – Stable at 8
The economy expanded by 5.2% in the third quarter of 2025, up from 4.4% in the preceding three months. That places the country firmly on track to achieve the higher end of its 2025 growth target of between 4.0% and 4.8%. Officials said resilient domestic demand continued to anchor growth despite lingering external headwinds and global uncertainties.
Domestic demand, underpinned by strong household spending, supported by favourable labour market conditions as well as contained inflation, remained the key driver of growth in 2025. For the first nine months of 2025, the economy expanded by 4.7%. In November 2025, HSBC Global Investment Research (HSBC Research) raised its 2025 GDP forecast to 5% from the previous estimate of 4.2%, adding that Malaysia would be the second fastest growing economy in ASEAN after Vietnam.
The economy will maintain healthy growth in 2026 according to various forecasters. Worldbox Business Intelligence expects average growth of around 4.5% over the year. Malaysia should benefit from its diversified exports, resilient domestic demand and stronger construction activity, particularly from data-centre investments. Meanwhile, manufacturing remains stable, and tourism is likely to enjoy another strong year. In the first eight months of 2025, Malaysia recorded 28.2 million foreign visitor arrivals who generated RM186.4bn (S$45 bn) in tourism revenues. The figures represent a 14.5% rise in arrivals and an 84.9% jump in revenue compared with the same period in 2024.
Malaysia’s inflation rate eased to 1.3% in October 2025, down from September, driven by lower food and housing costs, though core inflation (excluding volatile items) rose to 2.2%, the fastest pace in two years. The data marked Malaysia’s 27th consecutive months of headline inflation staying below 2%, suggesting pressure on monetary policy remains low. Malaysia’s key interest rate, the Overnight Policy Rate (OPR), stands at 2.75% as of late 2025 and is likely to remain at that level for some time.
The budget announced in October continues to focus on fiscal consolidation, and the generation of inclusive and sustainable growth, and long-term competitiveness. The government aims to reduce the fiscal deficit to 3.5% of GDP in 2026, from 3.8% in 2025.
Malaysia consistently runs a current account surplus, driven mainly by strong goods exports. The surplus widened in the third quarter of 2025 to RM12.2 billion. The services account posted a surplus for the first time in 14 years, buoyed by robust growth in the tourism receipts from higher international arrivals.
Commercial Risk – Stable at 8
The country benefits from a generally good level of credit quality and a low level of non performing loans. The strong likelihood is that this will continue. As always, adverse business or economic conditions could potentially impair this capacity.
Technology Risk – Stable at 8
Malaysia’s technology sector will continue to advance strongly in 2026 according to a report in the local SinarDaily publication. Rapid advances in AI and a boom in data centre investments, amid intensifying strategic competition between the United States and China would power the advance. According to official figures, in the first half of 2025, approved investments in the AI sector reached RM13.29 billion. The data centre and cloud vertical was the leading area of investment under the Malaysia Digital initiative, contributing RM30.95 billion to total digital investments.
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 84 out of 167 in the 2025 report, with a score of 69.5.
Environment: Malaysia’s environmental resources are one if its main draws for tourists. It is blessed with a wealth of natural beauty and rich biodiversity. It boasts some of the oldest tropical rainforests on the planet, including the renowned Taman Negara, which has existed for over 130 million years, as well as rich marine life and coral reefs.
The country faces environmental challenges, including deforestation. However, there are some positive signs. The rate of deforestation in Malaysia has fallen to record lows supported by corporate commitments to curb deforestation.
In December 2025, the government announced it is developing a National Climate Resilience Plan to strengthen Malaysia’s ability to cope with major floods and increasingly extreme weather patterns across Peninsular Malaysia and East Malaysia. The plan is expected to be complete by the end of 2026. Measures already being implemented include river basin development and management, land-use control in high-risk areas, river restoration programmes and coastal management initiatives.
Social: The US State Department’s 2024 report on Malaysia says that “there were no reports the government or its agents committed arbitrary or unlawful killings, including extrajudicial killings, during the year”.
However, it added that the government regularly restricted freedom of expression for members of the public, nongovernmental organizations (NGOs), and media, citing reasons such as upholding Islam and the special status of ethnic Malays, protecting royalty or national security, maintaining public order, and preserving friendly relations with other countries.
In September 2025, the government introduced the world’s first comprehensive protection bill directly targeting gig workers. It will impact over 1.2 million workers in Malaysia. The new law contains provisions concerning service contracts, the rights of gig workers including just cause for dismissal, provisions concerning dispute resolution and tribunals, and requirements concerning councils governing areas such as minimum remuneration, and social security/health and safety.
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 a recent report by PwC.
February Bulletin
Environmental, Social and Governance (ESG) – Stable at 8
In December, Google signed a long-term power purchase agreement to secure solar electricity from a nearly 30-megawatt project in northern Malaysia. The deal reinforces government efforts to attract foreign investment through clean power availability. The country’s National Energy Transition Roadmap targets renewables to make up 70% of installed power capacity by 2050, up sharply from roughly 26% last year, according to BloombergNEF. The availability of clean energy is particularly important given the growing importance of the energy-hungry data centre industry in the country.
Latest economic data
f forecasts
* Worldbox Business Intelligence
Source: International Monetary Fund, official figures, except where stated
Source: Worldbox
Useful Links
https://www.imf.org/en/Countries/MYS
https://www.freemalaysiatoday.com/
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