MALAYSIA ECONOMIC MONITOR OCTOBER 2025 From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity CONNECT WITH US @WorldBankMalaysia @WB_AsiaPacific bit.ly/WBMYblogs worldbank.org/malaysia | ifc.org | miga.org MALAYSIA ECONOMIC MONITOR OCTOBER 2025 From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity © 2025 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution: Please cite the work as follows: World Bank (2025) “From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity” Malaysia Economic Monitor (October), Washington, DC: The World Bank. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Cover design and layout: Kane Chong Sdn Bhd Credit for non-WB images: istockphoto.com / unsplash.com Acknowledgements This edition of the MEM was co-led by Deisigan Shammugam and Yew Keat Chong, with the Special Topic led by Marco Larizza. The extended team included Apurva Sanghi, Fionne Lim Jing Wen, Shakira Teh Sharifuddin, Ayesha Khurshid, Carmen Loo, Ririn Salwa Purnamasari, Matthew Dornan, Alyssa Farha Jasmin, Natalie Fang Ling Cheng, Philbert Tiki Yong, Shahira Zaireen Johan Arief Jothi, Aruhvi Krishnasamy, Rebecca Shu Wen Choong, Yu Cao, Kian Howe Ong, Agustin Samano Penaloza, Yi Ting Tay, Timothy Xia Wei Choy, Elena Zafrul, Hunt La Cascia, James Garber, Bertram Boie, Chian Vern Wong, Zenaida Hernandez Uriz, and Ya Shin Wan. The team is grateful to Kiatipong Ariyapruchya and Donna Andrews for their constructive input on the document and to Zafer Mustafaoglu, Judith Green, Sebastian Eckardt, and Oleksii Balabushko for their overall guidance. The MEM consists of two parts. Part 1 presents a review of recent economic developments and a macroeconomic outlook. Part 2 focuses on a selected special topic that is key to Malaysia’s medium- term development prospects and to the achievement of shared prosperity. The team would like to thank the Ministry of Economy, as well as the Ministry of Finance, Bank Negara Malaysia, the Pubic Service Department, and the Ministry of Digital for close collaboration with the World Bank and for the crucial support to the launch of this report. Jeannette Goon Chern Yuet and Dina Murad led external communications, and Kane Chong led the production and design of the report, while Minisha Deepu provided administrative support and editorial assistance. The report is based on information current as of September 10, 2025. Please contact Apurva Sanghi (World Bank Lead Economist for Malaysia) at asanghi@worldbank. org, Deisigan Shammugam at dshammugam@worldbank.org (MEM co-task team leader and World Bank Economist for Malaysia) and Yew Keat Chong (MEM co-task team leader and World Bank Senior Economist for Malaysia) at ychong@worldbank.org or for questions, comments, or suggestions regarding the MEM. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 3 Table of Contents Acknowledgements 3 Abbreviations 6 Executive Summary 9 Recent economic developments 9 Economic outlook 12 From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity 13 PART ONE 18 Recent Economic Developments 20 The global economy is facing substantial headwinds, with increased trade tensions and heightened policy uncertainty 20 Malaysia’s growth was supported by domestic demand 21 Export growth moderates amid decline in commodity exports 22 Investment activity is supported by project pipelines, but weaker sentiment weighs on momentum 23 Box 1: Navigating U.S. Tariffs 24 Box 2: ASEAN as Malaysia’s Growth Catalyst: Measuring Spillover Effects 30 Unemployment rates remain low as demand for labor continues to rise 33 Box 3: Emerging Technology and Jobs in Malaysia 36 Poverty and inequality remain a concern, with persistent spatial divides 38 Headline inflation continued to moderate 40 Economic growth continued to be supported by expansion of financial intermediation 41 Fiscal consolidation is accompanied by cuts to development spending amid declining revenue 44 Debt pressures remain, underscoring the need for enhanced consolidation efforts to meet FRA targets 47 Box 4: Strengthening the FRA 48 Economic Outlook 51 Global and regional growth is expected to moderate in 2025, mainly reflecting weaker global trade 51 Malaysian growth is projected to moderate in 2025, though it is higher than initially expected 51 The balance of risks to growth is tilted to the downside 53 PART TWO 55 From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity 56 Malaysia’s strong digital foundations position it as a regional leader in building a future-ready government 59 Box 5: Cost Savings and Efficiencies from Digital Public Infrastructure (DPI) 61 GovTech enablers are needed to transform digital foundations into real productivity gains 62 Malaysia has strong GovTech institutions, but gaps in coordination, monitoring, and engagement risk limiting their impact 63 Supported by the recent Data Sharing Act, Malaysia can unlock AI-driven productivity through greater cross-agency data sharing 66 Unlocking public value from data requires moving towards an ‘open-by-default’ culture, where data is routinely shared and reused to drive better services 68 4 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 Malaysia’s public service digital skills form a pyramid of foundational, intermediate, and advanced expertise 72 Effective HRM is vital to equip Malaysia’s public service with the digital talent to drive transformation 74 Progress on digital skills in recruitment and appraisal is uneven, with ongoing challenges in attracting and retaining talent 74 There is strong demand for digital upskilling, but uneven training uptake and skills gaps limit impact 77 Box 6: AI for Malaysian Public Servants 79 Growing digital skills must be matched with stronger leadership and a change-ready culture to deliver sustained productivity gains 80 Ultimately, digital transformation offers an opportunity to fundamentally reshape interactions within and with government 82 Malaysia’s leading G2C platforms outperform peers, though gaps in user-centered design remain 82 Strong G2G systems support coordinated governance, but limited interoperability and transparency constrain their full potential 84 G2B services are widely adopted, though uptake by SMEs and in less-connected regions is uneven 86 Box 7: Fragmentation of Social Protection in Malaysia 88 Recommendations: Leveraging GovTech for smarter, more efficient government 89 Box 8: Strengthening EA Oversight in Canada 89 Box 9: A Complex, Multi-Faceted National, Regional and Local Whole-of-Government Governance Model 90 Box 10: Estonia’s X-Road: A Backbone for Seamless and Secure Data Exchange 91 Box 11: Digital Secondments into the French Government 92 Box 12: Developing a Digital Competency Framework in Romania 93 Box 13: Professionalizing Digital Careers in the U.K. Public Sector 94 Box 14: Singapore’s Core Competency Framework for Digital Leadership 94 Box 15: Sweden’s Orange Envelope and minPensio – A Citizen-Centric Digital Pension Service 95 References 96 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 5 Abbreviations 3M KLIBOR 3-month Kuala Lumpur Interbank Offered Rate G2B Government-to-Business 4IR National Fourth Industrial Revolution G2C Government-to-Citizen AI Artificial Intelligence G2G Government-to-Government API Application Programming Interface GC Government of Canada ASEAN Association of Southeast Asian Nations GDB Global Data Barometer BNM Bank Negara Malaysia GDP Gross Domestic Product BPJPH Halal Product Assurance Organizing Body GDS Government Digital Service CAD Canadian Dollar Government-linked Enterprises Activation and GEAR-uP Reform Program CCF Core Competency Framework GFCF Gross Fixed Capital Formation CDO Chief Digital Officer GPU Graphics Processing Unit CIT Corporate Income Tax GSB Government Service Bus CMIS Customs Management Information System GTMI GovTech Maturity Index COVID-19 Coronavirus Disease 2019 HS Harmonized System CPI Consumer Price Index HR Human Resources Comprehensive & Progressive Agreement for CPTPP Trans-Pacific Partnership HRM Human Resource Management DDaT Digital, Data and Technology HTS Harmonized Tariff Schedule DDI Domestic Direct Investment ICT Information and Communication Technology DC District of Columbia IC Integrated Circuit DE Development Expenditure ID Identification DINUM Interministerial Directorate for Digital Affairs Integrated Government Financial and Management iGFMAS Accounting System DOSM Department of Statistics Malaysia ILO International Labour Organization DOTS Direction of Trade Statistics IMDA Infocomm Media Development Authority DPI Digital Public Infrastructure IMF International Monetary Fund DRAM Dynamic Random Access Memory IPO Initial Public Offering DSR Debt Service Ratio IT Information Technology DSS Digital Service Standard JAKIM Department of Islamic Development Malaysia DT Disruptive Technologies JDN National Digital Department DTA Digital Transformation Agency KBS Ministry of Youth and Sports E&E Electrical and Electronics KE Ministry of Economy EA Enterprise Architecture KKDW Ministry of Rural and Regional Development EAP East Asia and the Pacific KPDN Ministry of Domestic Trade and Cost of Living EARB Enterprise Architecture Review Board KPI Key Performance Indicator ECA Europe & Central Asia KPKT Ministry of Housing and Local Government EIG Entrepreneurs d’Intérêt Général KPN Ministry of National Unity EMDE Emerging Market and Developing Economies Ministry of Women, Family and Community KPWKM ES Executive Summary Development EU European Union LAC Latin America & Caribbean FTSE Bursa Malaysia Kuala Lumpur Composite LCR Liquidity Coverage Ratio FBMKLCI Index LFS Labor Force Survey FDI Foreign Direct Investment LHS Left Hand Side FOI Freedom of Information MAFS Ministry of Agriculture and Food Security FRA Fiscal Responsibility Act 6 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 Abbreviations Malaysian Administrative Modernisation & PDSA Public Sector Data Center MAMPU Management Planning Unit Ministry of Energy Transition and Water PETRA MATRADE Malaysia External Trade Development Corporation Transformation MDA Ministry, Department, & Agency PIMS Public Investment Management System MDEB Malaysia Digital Economy Blueprint PIT Personal Income Tax MDEC Malaysia Digital Economy Corporation PMD Prime Minister’s Department Ministry of Entrepreneur Development and PPPs Public-Private Partnerships MECD Cooperatives Development PSD Public Service Department National Digital Economy and Fourth Industrial MED4IRN Revolution Council PSDSP Public Sector Digitalization Strategic Plan MEM Malaysia Economic Monitor Q/Q Quarter-on-Quarter MENA Middle East & North Africa R&D Research and Development MFN Most-Favored-Nation RAM Rating Agency Malaysia MGS Malaysian Government Securities RCEP Regional Comprehensive Economic Partnership MIDA Malaysian Investment Development Authority RHS Right Hand Side MINDEF Ministry of Defence RM Ringgit Malaysia MITI Ministry of Investment, Trade and Industry RON Research Octane Number MOC Ministry of Communications RTI Right to Information MOD Ministry of Digital SC Securities Commission MOE Ministry of Education SDG Sustainable Development Goal MOF Ministry of Finance SRU Skills-Related Underemployment MOFA Ministry of Foreign Affairs SSPA Public Service Remuneration System MOH Ministry of Health SST Sales and Services Tax MOHE Ministry of Higher Education SME Small and Medium-Sized Enterprises MOHR Ministry of Human Resources STRI Services Trade Restrictiveness Index MOSTI Ministry of Science, Technology and Innovation SWS Salaries and Wage Survey MOT Ministry of Transport TCR Total Capital Ratio MOTAC Ministry of Tourism, Arts and Culture TMIS Tax Management Information System MOW Ministry of Works TSA Treasury Single Account MP Malaysia Plan TSI Technical Support Instrument MPC Monetary Policy Committee UK United Kingdom MPIC Ministry of Plantation and Commodities UN United Nations MSME Micro, Small and Medium Enterprise UNCTAD United Nations Trade and Development MyGDX Malaysian Government Central Data Exchange United Nations Educational, Scientific and Cultural UNESCO Organization n.d. No Date U.S. United States NDSP National Data Sharing Policy USD United States Dollar Ministry of Natural Resources and Environmental NRES Sustainability USITC United States International Trade Commission NTB Non-Tariff Barriers UTC Urban Transformation Center OE Operating Expenditure WoG Whole-of-Government Organization for Economic Co-operation and WTO World Trade Organization OECD Development Y/Y Year-on-Year OPR Overnight Policy Rate OSS Open-Source Software MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 7 8 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 Executive Summary Malaysia’s economy grew by 4.4 percent in the first half of 2025, supported by resilient private Recent economic consumption and investment. Growth is projected to ease to 4.1 percent this year and moderate further in developments the medium term amid persistent external headwinds. Inflation may temporarily rise from domestic policy Malaysia’s economy expanded by 4.4 percent in reforms such as the subsidy rationalisation, but overall Q1 and Q2 2025, supported by domestic demand price pressures are expected to remain contained. (Figure ES1) . Private consumption remained Fiscal consolidation has relied on expenditure restraint, resilient, underpinned by favorable labor market though high debt and declining revenues underscore conditions and income-support measures, while both the need for stronger revenue mobilization to fund private and public investment strengthened. On the key priorities. Despite substantial progress in poverty supply side, Q2 2025 growth was driven by services reduction, inequality remains a concern. Structural and manufacturing, with additional support from reforms to safeguard trade and investment, raise agriculture and construction, while mining contracted incomes, strengthen fiscal capacity, and enhance social due to oil and gas maintenance. Seasonally adjusted mobility will be critical for navigating global challenges GDP grew by 2.1 percent quarter-on-quarter in Q2 and supporting sustainable, inclusive growth. 2025 reflecting firmer momentum driven in part by front-loaded activities after the modest pickup in Q1. GovTech—the special topic of this edition—has the potential to act as a critical lever for boosting FIGURE ES1 public sector productivity and sustaining Malaysia’s The economy expanded by 4.4 percent in H1 transition to a digitally driven, high-income 2025, underpinned by resilient domestic demand economy, which in turn will enable private sector Contribution to real GDP growth and real GDP growth, y/y, growth and higher quality jobs for Malaysians. The Percentage country has committed significant financial resources 10 to digitalization—investing billions in platforms such 8 as MyGovCloud, MyDigital ID, and interoperable data systems—making it one of the region’s most ambitious 6 Private Consumption GovTech reformers. However, international experience 4 Public Consumption shows that investments in digital technology alone 2 GFCF does not guarantee impact; without the adequate “analogue” complement s — robust institutions, 0 Change in Inventory cross-government coordination, transparent data Net Exports -2 governance, and a digitally skilled workforce—digital Real GDP, y/y investments risk fueling disillusionment rather than -4 delivering productivity gains for governments and -6 societies. The window for action is narrow as citizens’ Q1-2023 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 expectations rise alongside escalating investments. Delays in strengthening the enabling environment could erode public trust and slow Malaysia’s digital Source: World Bank staff calculations based on DOSM data. momentum. Malaysia has already begun addressing these gaps through the creation of the Ministry of Digital, the Jabatan Digital Negara, and nationwide Amid rising trade policy uncertainty, Malaysia’s skills initiatives, yet challenges remain in integration, goods export growth slowed in Q2 2025. Gains in transparency, and uneven adoption across ministries electrical and electronics (E&E) exports were offset by and regions. To fully realize the “digital dividends”, weaker shipments of non-E&E products and mining Malaysia must move decisively to strengthen digital commodities (Figure ES2). E&E exports remained foundations, empower institutions, and put citizens robust, supported by sustained AI-related demand at the center of reform—ensuring GovTech becomes and a temporary boost from frontloading of orders a vehicle for efficiency, and a driver of trust, inclusion, ahead of potential U.S. tariff measures (see Box 1: and sustainable growth. Navigating U.S. tariffs), though this effect is expected MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 9 Executive Summary to taper later in the year. In contrast, mining exports years old) edged up slightly to 9.9 percent (Q2 2024: 9.8 declined due to scheduled maintenance at several percent), more than triple the average, and suggesting sites by Petronas and weaker global commodity prices. unique barriers to opportunities for labor market Meanwhile, gross imports accelerated to 9.0 percent entrants. Meanwhile, skills-related underemployment (Q1 2025: 2.8 percent), driven by higher capital goods (SRU) also remained high at 35.6 percent, particularly purchases and partly offset by softer demand for among women and younger cohorts. intermediate goods. As a result, the current account surplus narrowed sharply to 0.1 percent of GDP in Q2 Labor demand remained relatively robust, though 2025 (Q1 2025: 3.4 percent), reflecting a smaller goods employment growth moderated. The vacancy-to- surplus and a wider secondary income deficit, partly unemployment ratio increased to 0.37 (Q2 2024: 0.35), offset by improvements in services and primary income indicating continued demand for workers, but still balances. below pre-pandemic levels. Most job openings were semi-skilled roles concentrated in manufacturing, particularly electrical and electronic products, followed FIGURE ES2 by agriculture, construction, and services. Despite Export growth moderated in Q2 2025, weighed this demand, overall employment growth slowed to down by weaker commodity exports 1.6 percent year-on-year, led by weaker job creation Exports growth and contribution to export growth, y/y, in services, agriculture, and manufacturing, though Percentage 10 services continued to contribute the most jobs. Structural factors such as population aging, digital 5 and green transformation, and job quality continue to 0 shape labor demand (See Box 3: Emerging technology and jobs in Malaysia). -5 -10 Labor productivity growth moderated, but wages continued to rise across most sectors. Labor -15 productivity slowed to 2.8 percent year-on-year during -20 the second quarter, reflecting contractions in mining Q1-2023 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 and weaker gains in construction, while services recorded stronger efficiency improvements. Median formal sector wages rose to RM3,000 in March 2025, E&E Non E&E up 4 percent year-on-year, with the gender wage Commodities Exports, y/y gap narrowing. Overall, sustained wage gains point Source: World Bank staff calculations based on DOSM data. to continued improvements in household incomes despite softer productivity growth. Investment momentum carried into 2025, with Poverty and inequality remain a concern , approved investment increasing to 19.6 percent underlined by persistent spatial disparities. of GDP in H1 2025, underpinned mainly by foreign Malaysia has made major progress in reducing poverty, direct investment (FDI) in the information and with hardcore poverty, defined as those living below communications technology (ICT) subsector. This RM1,198, declining to just 0.2 percent by 2022. Yet, momentum underpins sustained growth in private about 6.2 percent of households, or nearly 490,000, investment activity, which rose to 15.8 percent of GDP still live below the national absolute poverty line in 2024 from 14.8 percent in 2023 and 14.3 percent in (RM2,589), with poverty remaining concentrated in 2022, supported by a steady realization of approved rural areas, especially rural Sabah where rates reach projects. The bulk of new approvals in 2024 were 28.5 percent. Bumiputera households, historically the concentrated in services, particularly ICT, reflecting the most disadvantaged, have seen the fastest pro-poor global trend of rising greenfield FDI in digital services income growth since 2004, reducing absolute poverty and solutions, data centers, and ICT equipment. to below 5 percent by 2019–22. However, progress has been uneven, with Bumiputera in East Malaysia lagging Labor market conditions strengthened in Q2 2025, behind those in Peninsular Malaysia. The Gini index— but challenges persist. Labor force participation which measures income inequality—remains high at 39, increased slightly to 70.8 percent (Q2 2024: 70.7 and social mobility is limited, with many low-income percent), while the unemployment rate declined to 3.0 households struggling to move up. Although Malaysia percent, driven by sharp improvements among prime- is on the verge of achieving high-income status, less age and older workers. Youth unemployment (15–34 than half of its population is projected to have incomes 10 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 Executive Summary above the high-income threshold due to uneven versus gains of 8.6 percent and 13.7 percent in the income distribution. MSCI World and Emerging Markets indices, weighed down by U.S. tariff concerns, geopolitical tensions, and Inflation continued to ease in H1 2025, reflecting domestic tax and tariff uncertainties. In contrast, bond both domestic and external factors. Headline markets strengthened, with 10-year MGS yields down inflation rose slightly to 1.2 percent in July 2025 from 1.1 35 basis points to 3.4 percent and AAA corporate in the previous month, driven by increases in services, yields easing 23 basis points to 3.8 percent, reflecting namely in insurance and finance as well as restaurants lower inflation, OPR cut, and softer U.S. Treasury yields. and accommodation. This overall moderation in Foreign inflows reached USD 2.3 billion in H1 2025, inflation is consistent with regional developments. driven by portfolio flows into the bond and sukuk Core inflation, however, held steady at 1.8 percent. market. Private sector credit growth moderated in H1 Fiscal consolidation is set to continue in 2025, 2025 compared with H2 2024, as both household driven mainly by expenditure cuts. In 2024, the and business lending slowed despite more fiscal deficit narrowed to 4.1 percent of GDP as higher accommodative financial conditions. Outstanding operating expenditure (OE) was offset by stronger loans rose by 2.2 percent in H1 2025, compared with revenue and reduced development expenditure (DE). 3.3 percent in the preceding six months. Household For 2025, revenue is projected to ease to 16.3 percent lending was suppor ted by housing and vehicle of GDP amid softer growth and oil-related shortfalls, financing, while business lending was subdued, despite additional collections from the expanded SST. reflecting softer SME financing and broadly flat non- The fiscal deficit target of 3.8 percent of GDP in 2025 SME lending. Softer lending and deposit rates, rests on expenditure cuts, mainly from lower subsidies alongside a decline in the 3M KLIBOR, supported and social assistance following fuel and electricity credit conditions, with Bank Negara Malaysia (BNM) subsidy reforms. OE is expected to fall to 16.1 percent later cutting the OPR to 2.75 percent in July 2025. of GDP, while DE will moderate to 4.1 percent, with Financial stability remained sound, as impaired loans medium-term allocations under the 13th Malaysia Plan stayed at a five-year low of 1.4 percent, and banks (MP) set lower relative to the 12th MP. maintained strong capital and liquidity buffers well above the regulatory requirement. Malaysia’s federal government debt remains elevated and debt-service pressures are rising, M a laysian capita l mar kets faced mi xed underscoring the need for continued fiscal developments in H1 2 02 5 , with eq uities consolidation to place debt on a firm downward underperforming global peers but bonds attracting path and safeguard fiscal space. The federal strong foreign demand. The FBM KLCI fell 6.7 percent government debt ratio increased to 64.6 percent MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 11 Executive Summary of GDP in 2024 and is projected at 64 percent in Headline inflation is projected to remain low in H2 2025. Debt service costs are also increasing faster 2025, reflecting moderate cost pressures. Recently than revenue, with the debt service-to-revenue ratio announced domestic policy measures—including the expected to reach 16.1 percent in 2025, breaching the SST expansion, minimum wage revision, progressive 15 percent administrative threshold and limiting fiscal wage model, rationalization of RON95 subsidies, and space. While the authorities have achieved fiscal deficit civil service wage adjustments—are expected to raise targets since 2022, further consolidation is required prices, though the overall impact should be contained. to place debt on a firm downward path, safeguard This outlook is underpinned by moderate global cost compliance with the fiscal rules, and contain rising conditions and lower commodity prices. Upside risks interest costs. World Bank staff estimates indicate arise from stronger-than-expected pass-through of that attaining a primary balance of about 1 percent of domestic reforms, as well as inflationary effects from GDP would be necessary to ensure debt sustainability, significant trade policy shifts and conflict-related in line with debt ceiling outlined in the Public Finance disruptions. and Fiscal Responsibility Act (FRA) (see Box 4: Strengthening the FRA). Malaysia’s growth is expected to moderate nex t year, weighed dow n by persistent external headwinds, including uncertainty over Economic outlook semiconductor tariffs. Domestic demand is expected to remain the main growth driver, while export growth is likely to weaken as front-loading effects unwind Malaysia’s economy is projected to expand and the impact of prospective tariff measures on by 4.1 percent in 2025, moderating from 5.1 the semiconductor sector remains uncertain. Private percent in 2024. This marks a 0.2 percentage point consumption will be supported by continued wage upward revision from earlier forecasts. Growth will gains and the second phase of civil service salary be supported by stronger-than-expected private increases, while GFCF is projected to ease but remain investment and resilient exports in the first half of supported by ongoing and approved projects. the year, alongside additional fiscal and monetary policy support. Private consumption will benefit from The growth outlook faces significant risks, with continued improvements in labor market conditions, the balance tilted to the downside. Externally, real wage growth, and income-supporting measures. fur ther increases in trade barriers, persistent Public consumption will also rise, partly due to civil policy uncertainty, and  potential downside shocks ser vant salar y adjustments. While GFCF growth in major economies could further weaken global is expected to moderate, it remains stronger than grow th, trade and investment, with significant previously projected, supported by ongoing multi- implications for Malaysia given its deep trade and year investments and public sector spending on financial linkages.  Commodity prices could also fall infrastructure and catalytic initiatives under national below baseline projections, weighing on Malaysia’s master plans. Public corporations’ investment activity terms of trade and potentially prompting fiscal will also be lifted by ongoing strategic infrastructure tightening as commodity-linked revenues decline.  projects and reforms under the GEAR-uP initiative.1 Domestically, higher-than-expected inflation from further subsidy rationalization may dampen household External conditions remain challenging for consumption, while elevated uncertainty and weaker Malaysia’s exports. Although the conclusion of business sentiment could delay or scale back planned most trade negotiations has reduced global policy investments. Adverse weather and extended field uncertainty, export momentum is expected to ease maintenance could disrupt commodity production. toward end-2025 as front-loading effects fade and Upside risks include favorable trade outcomes, tariff-related cost pass-through intensifies. Additional stronger global growth, higher commodity prices, drags include weaker sentiment, a stronger exchange and, domestically, more resilient household spending rate, and lower commodity output. Nonetheless, and faster implementation of ongoing investment tourism activity and sustained demand for electrical projects. and electronics products, supported by AI-related investment, should provide some offset. 1 The Government-linked Enterprises Activation and Reform Programme (GEAR-uP) is a government-led initiative aimed at catalyzing growth in key economic sectors through domestic direct investment (DDI) over the next five years. Six government-linked investment companies (GLICs) have pledged to invest RM120 billion—or about 6.2 percent of Malaysia’s 2024 GDP—in DDIs over the next five years under the program. 12 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 Against the backdrop of heightened uncertainty, Malaysia can bolster trade resilience by supporting From Bytes to Benefits: firms more effectively, reducing trade barriers, and advancing sector-specific reforms. For MSMEs Digital Transformation in particular, key measures include providing stronger as a Catalyst for Public technical assistance, expanding the effective use of trade agreements, and institutionalizing public–private Sector Productivity collaboration to help them adapt to shifting global trade policies. Further liberalization through reducing Governments around the world are embracing tariffs and non-tariff barriers and pursuing deeper trade GovTech to transform how the public sector works integration would lower input costs, diversify export and delivers services. Digital transformation has markets, and mitigate exposure to external policy risks. become a cornerstone of modernization, enabling Sector-specific efforts are also needed. In the E&E institutions to operate more efficiently, citizens industry, future growth remains constrained by low to access services more easily, and economies to research and development (R&D) spending and limited capture new productivity gains. Yet, the benefits indigenous innovation. Increasing application-oriented of GovTech do not flow automatically. Experience R&D investment through government subsidies, tax across countries shows that digital tools translate into incentives, and stronger technology transfer between tangible improvements only when paired with strong multinationals and domestic firms would help enhance institutions, coherent regulations, a digital skilled public Malaysia’s competitiveness. service, and cultures of openness and accountability. Without these “analogue complement s,” the At the regional level, Malaysia could leverage promise of “digital dividends” may remain unfulfilled, its ASEAN leadership to unlock the benefits of generating societal frustration and undermining deeper integration. Low levels of intra-regional citizen’s trust. Today, Malaysia is at a crossroads, having trade highlight significant untapped opportunities committed significant financial and political capital to for building a stronger regional market. Advancing building a digitally ready government, with GovTech services liberalization, where restrictions remain high recognized as a driver of productivity and socio- despite the sector’s growing role in employment, economic transformation under its 12 th and 13th MPs. productivity, and value creation, would further enhance It is, therefore, imperative that the right reform path be competitiveness in services and manufacturing alike, chosen, one that maximize the “digital dividends” for supporting more resilient and broad-based growth. all segments of society. On the fiscal side, strengthening revenue Adopting a three-layer analytical framework, mobilization is critical to restoring fiscal space and this report highlights the conditions under which safeguarding growth-enhancing investment. While GovTech can fulfill its potential and deliver long- subsidy rationalization has supported consolidation, lasting productivity gains (Figure ES1). At the base the associated reduction in development spending are digital “foundations” which include the digital highlights the need to balance fiscal discipline with infrastructure and platforms—such as cloud systems, investment priorities. Malaysia’s relatively low tax secure networks, and digital IDs—that underpin capacity continues to constrain its ability to finance digital government. Building on this are “enablers”— long-term inclusive growth. 2 Despite recent reforms, the institutions, regulations, skills, and governance revenue collection remains modest, underscoring the arrangements that embed digital reforms within the importance of further measures such as enhancing public service and sustain transformation over time. At general consumption tax, broadening personal income the top are user-centric services, the ultimate outcome and capital gains tax bases, streamlining corporate of GovTech, where citizens and businesses benefit from tax incentives, and strengthening tax administration. integrated, responsive, and inclusive digital services. Complementing these revenue efforts with stronger Together, these layers help governments translate fiscal discipline will be essential. In this regard, effective inputs into measurable outcomes, turning financial implementation of the FRA requires greater clarity on investments into more efficient, equitable, and trusted existing rules and a reinforced framework design to public services. Malaysia’s progress and remaining support operationalization and enforcement. challenges can be understood through this lens. 2 See Chapter 7 of Aiming High (2021) report on revenue analysis and Box 5 on “Future-proofing Malaysia’s Public Finances” in the October 2024 MEM for a discussion on navigating future spending needs. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 13 Executive Summary FIGURE ES3 Making GovTech Work for Public Sector Productivity: A Conceptual Framework OUTPUTS User-centric Service Delivery ENABLERS Digital Technology Institutions Data Sharing Digital Skills OUTPUTS PUBLIC SECTOR INPUTS PRODUCTIVITY FOUNDATIONS Digital Government Infrastructure INPUTS Human Resources Financial Resources Source: World Bank GovTech Flagship Report for Malaysia (forthcoming), building upon the World Bank’s Digital Global Challenge Program Framework and the World Bank Bureaucracy Lab’s framework on the productivity of public servants.3 Malaysia has made significant progress in ID and the widespread adoption of digital payments building strong digital foundations, but greater have created secure and trusted channels for citizen- oversight and integration are needed to maximize government interaction. Together, these platforms their benefits. Investments in infrastructure have form the backbone of Malaysia’s digital government. positioned Malaysia as a regional leader, reflected However, challenges remain. Enterprise Architecture in high rankings on international benchmarks on (EA) —critical to aligning systems and avoiding connectivity and digital government maturity. The duplication— has not been systematically monitored country has migrated 70 percent of agencies to or enforced (Figure ES4). The policy for data sharing MyGovCloud@PDSA, demonstrating transparency by and open data adoption remains advisory rather than publishing data on usage, cost savings, and security. mandatory (Figure ES5), limiting its potential to drive It has also expanded the Government Service Bus efficiency gains, productivity and innovation across the and Malaysian Government Central Data Exchange public service. Without stronger systems integration, (MyGDX) to facilitate cross-agency data exchange, effective enforcement and oversight, the impact of enabling more coordinated policymaking and efficient Malaysia’s infrastructure gains may be diluted, creating service delivery. In parallel, the rollout of MyDigital risks of fragmentation and underutilization. FIGURE ES4 FIGURE ES5 Malaysia does not actively track or publish data Malaysia does not mandate the Open Source on EA usage, compliance, or its benefits Software policy in the public sector Monitoring and publishing of EA usage, compliance and bene ts Open Source Software policy/action plan for the public sector GTMI Score GTMI Score OECD 64.7% 11.8% 23.5% OECD 8.8% 61.8% 29.4% ASEAN 60% 10% 30% ASEAN 40% 50% 10% 0 20 40 60 80 100 0 20 40 60 80 100 No Yes (internal, not published) Yes (public, published) No Yes (Advisory/R&D) Yes (Mandatory) Malaysia: No Malaysia: Yes (Advisory/R&D) Source: GTMI 2022, World Bank Source: GTMI 2022, World Bank 3 Source: World Bank reports on Global Challenge Program: Accelerating Digitalization and Innovating Bureaucracy for a More Capable Government, 2019. 14 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 Executive Summary Institutional enablers of digital transformation close to 90 percent. Flagship platforms such as MyTAX have been strengthened over recent years. A critical and MyOnline Passport report high user satisfaction, milestone has been achieved with the creation of the while e-filing and e-payments are now nearly universal Ministry of Digital in 2023, consolidating leadership of among businesses. Government-to-Government the digital agenda, and the restructuring of MAMPU systems such as iGFMAS, the Treasury Single Account, into Jabatan Digital Negara (JDN) to provide a and the Public Investment Management System dedicated institution for GovTech. Moreover, high-level have modernized financial management and public coordination platforms, including the Modernization investment, aligning Malaysia with regional and global and MyDIGITAL Government Cluster Committee peers. chaired by the Chief Secretary to the Government and the National Digital Economy and 4IR Council FIGURE ES6 chaired by the Prime Minister, provide venues for cross- Across ministries, staff report challenges in government dialogue. Malaysia has also institutionalized attracting digital talent6 a digitalization strategy4 and launched a structured Percentage of respondents who report dif culty in attracting digital skills development program.5 These reforms are digital talent essential to embedding digital transformation into the 70 64 institutional fabric of the public service. 60 Average: 49% Nonetheless, persistent gaps in cross-ministerial 50 engagement on digital transformation, digital 40 skills, and resistance to change continue to limit 35 GovTech potential to translate digital investments 30 in observable productivity gains. Monitoring and 20 reporting of digital spending remain fragmented, ministries vary widely in their involvement, and many 10 continue to underinvest in training and digital capacity. 0 Recruiting and retaining digitally skilled staff remains a MOFA MITI MOSTI MOW MOHR MOHE MOC MOE MOF MECD MINDEF KKDW PMD KPWKM MAFS MPIC KDN KBS KPKT KPN KE MOH NRES PETRA MOTAC KPDN MOT MOD major challenge, with high turnover particularly among specialists. Nearly half of respondents across ministries Source: GovTech Skills Survey of Malaysian Public Servants 2025 reported difficulties in hiring staff with the necessary digital competencies, with the problem most acute in FIGURE ES7 the Ministry of Digital (64 percent) and the Ministry of Recruitment of digital talent faces challenges both Economy (54 percent) (Figure ES6). Importantly, the intrinsic and extrinsic to the service barriers lie less in salary competition with the private Challenges in recruiting staff with digital skills, Percentage sector than in internal factors—such as outdated systems, unclear career pathways, and uncertainty Poor equipment/software 51 about required skills—which together make it harder No clear career path 49 to attract and retain talent (Figure ES7). Moreover, Uncertainty on skill priorities 47 resistance among managers in some cases, siloed Dif cult nding candidates 41 planning, and limited inclusion of collaboration and Low salaries 38 feedback in strategic planning risk undermining the Competition with private sector 28 whole-of-government approach to public sector digital Lack of support from management 24 transformation. Long recruitment process 21 Short-term funding 15 No challenges 1 Digital service delivery has developed significantly, with nearly three-quarters of all public services 0 20 40 60 digitalized. At the federal level, coverage is already Source: GovTech Skills Survey of Malaysian Public Servants 2025 4 Source: The Public Sector Digitalization Strategic Plan 2021-2025. 5 The Malaysia Digital Skills Program. 6 Abbreviations: Ministry of Agriculture and Food Security (MAFS); Ministry of Communications (MOC); Ministry of Defence (MINDEF); Ministry of Digital (MOD); Ministry of Domestic Trade and Cost of Living (KPDN); Ministry of Economy (KE); Ministry of Education (MOE); Ministry of Energy Transition and Water Transformation (PETRA); Ministry of Entrepreneur and Co-operatives Development (MECD); Ministry of Finance (MOF); Ministry of Foreign Affairs (MOFA); Ministry of Health (MOH); Ministry of Higher Education (MOHE); Ministry of Home Affairs (KDN); Ministry of Housing and Local Government (KPKT); Ministry of Human Resources (MOHR); Ministry of Investment, Trade and Industry (MITI); Ministry of National Unity (KPN); Ministry of Natural Resources and Environmental Sustainability (NRES); Ministry of Plantation and Commodities (MPIC); Ministry of Rural and Regional Development (KKDW); Ministry of Science, Technology and Innovation (MOSTI); Ministry of Tourism, Arts and Culture (MOTAC); Ministry of Transport (MOT); Ministry of Women, Family and Community Development (KPWKM); Ministry of Works (MOW); Ministry of Youth and Sports (KBS); Prime Minister’s Department (PMD). MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 15 Executive Summary However, challenges in fragmentation, uneven institutions are needed to translate technology into real adoption , and limited citizen engagement impact. Third, digitally skilled people in public service undermine the full realization of “digital dividends”, are the engine of transformation, ensuring the benefits with tangible benefits for users. State-level of digital investments are fully realized. And fourth, adoption of digital services, particularly in Sabah active participation from citizens, businesses, and and Sarawak, lags, with only 59 percent of services government agencies—through feedback loops and digitalized compared to 89 percent at the federal level co-design processes—will strengthen trust and service (JDN, 2025). Smaller firms also face barriers: while quality, making productivity gains more inclusive and over 90 percent of large companies file and pay taxes widely felt. electronically, uptake drops on average to 81 percent among SMEs and varies across states, with one in four firms in Sabah and Sarawak still not using e-filing Embedding collaboration, or e-payment (World Bank Enterprise Surveys, 2024). accountability, and citizen- Many core systems continue to operate in silos, with centricity will be critical to limited interoperability and transparency compared to OECD benchmarks. Citizens are not systematically ensure digital transformation engaged in the design of services, and platforms often delivers measurable gains in lack feedback loops or published user satisfaction productivity, service quality, metrics Without stronger integration, inclusiveness, and user-centered design, Malaysia risks achieving and trust. digitalization without transformation and impact — delivering more online services but not necessarily M alaysia has made notab le progress in more trusted, efficient, or equitable services. infrastructure, reform, and service expansion, but the real test lies in consistent implementation. Malaysia is well placed to lead in GovTech-driven Embedding collaboration, accountability, and citizen- productivity, but success will depend on sustaining centricity will be critical to ensure digital transformation reforms across the 4Ps (see Figure ES8 for a delivers measurable gains in productivity, service summary of recommendations). First, productivity quality, and trust. By sustaining reforms and keeping gains hinge on robust digital platforms that reduce people at the center, GovTech can drive efficiency, duplication, enable integration, and lower transaction stronger institutions, inclusive growth, while opening costs. Second, clear policies and accountable pathways to better jobs and improved outcomes for all. 16 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 Executive Summary FIGURE ES8 In leveraging digital transformation for public sector productivity gains, the roadmap below outlines priority actions across the 4Ps, along with a suggested timeline to guide implementation REFORM ROADMAP – PROPOSED PRIORITY ACTIONS POLICY SHORT-TERM MEDIUM-TERM LONG-TERM RECOMMENDATION (< 1 year) (2-3 years) (3 years and beyond) Enhance Develop interoperability Roll out national Achieve seamless interoperability guidelines, integrate interoperability data exchange, build PLATFORMS to improve service quick-win systems, frameworks, link systems integrated cross- efficiency and build ICT capacity, and across sectors, and sector platforms, support more incentivize adoption monitor compliance and tie funding to 1 through recognition or to strengthen interoperability integrated services small grants. accountability. outcomes. Strengthen Launch monitoring Standardize monitoring Institutionalize monitoring and of MyGovCloud and frameworks across transparent reporting reporting to guide MyGDX, publish platforms and use across GovTech systems decisions, identify baseline compliance data insights to guide and showcase impact to gaps, and showcase data, and pilot reporting targeted digital build trust and attract dashboards in key investments. investment. value agencies. POLICY SHORT-TERM MEDIUM-TERM LONG-TERM RECOMMENDATION (< 1 year) (2-3 years) (3 years and beyond) Empower MOD Strengthen MOD’s Embed digital targets Make GovTech reforms to drive digital- role to drive economic in economic plans, track central to Malaysia’s POLICIES led economic transformation and productivity impacts of economic strategy and transformation and productivity, while linking reforms, and strengthen tie digital transformation 2 productivity digital reforms to service coordination between to growth and delivery outcomes. MOD, MOF, and KE. competitiveness. Gazette Freedom of Pass an FOI law with clear Establish multi-level Normalize “open by Information law to scope and procedures, appeals and redress default” practices, link cultivate culture of consult stakeholders to mechanisms and train FOI with digital services trust, transparency balance transparency and officials to operationalize to boost trust and and accountability privacy, and build public FOI effectively across adoption. awareness of its benefits. agencies. POLICY SHORT-TERM MEDIUM-TERM LONG-TERM RECOMMENDATION (< 1 year) (2-3 years) (3 years and beyond) Embed Digital Develop a digital Tie digital competencies Continuously update the Competencies competency framework, to career progression, competency framework in Public Sector pilot competency recognition, and training, to reflect evolving PEOPLE Performance indicators in appraisals, use workforce analytics to skills and integrate Management and track training uptake align staff aspirations with real-time workforce 3 and skills assessments to build workforce analytics. organizational needs. data into performance management and leadership pipelines. Improve Digital Provide foundational Introduce progressive Transform ICT scheme Training Pathways digital skills across training tiers for into a structured career in Malaysia’s Public all ministries, launch intermediate skills, align track, and institutionalize Service structured training needs training delivery across continuous skills assessments. institutions. assessment. POLICY SHORT-TERM MEDIUM-TERM LONG-TERM RECOMMENDATION (< 1 year) (2-3 years) (3 years and beyond) PARTICIPATION Institutionalize Require co-creation for Mandate user-centered Institutionalize citizen user-centered new services, conduct design across services engagement in all design in all usability testing, launch and use feedback loops service delivery and services. user satisfaction surveys to iteratively improve adopt iterative redesign 4 for key platforms. platforms. models. Consolidate and Empower JDN to Consolidate services Achieve 95 percent of standardize service review, approve, and under the Public Service federal services online delivery under a integrate new services Portal and MyGov app, by 2030 and position single governance while issuing common integrate MyDigital ID Malaysia in the UN’s top framework design and integration for secure, personalized 20 for e-Government standards. access. Development. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 17 PART ONE Recent Economic Developments and Outlook 18 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 19 PART ONE - Recent Economic Developments and Outlook Recent Economic Developments The global economy is facing substantial headwinds, with increased trade tensions and heightened policy uncertainty Global growth is moderating due to a substantial Activity in East Asia and the Pacific (EAP) is rise in trade barriers and the pervasive effects of slowing as rising global trade tensions and policy an uncertain global policy environment (Figure 1). uncertainty spill over through trade, investment, The global economy continued to expand in H1 2025, and financial channels (Figure 2). In China, growth supported by international trade and investment moderated from 5.4 percent in Q1 to 5.2 percent in Q2 activity, although private consumption growth has 2025, with consumption supported by fiscal measures slowed in many major economies. However, trade and resilient exports to non-US markets. Other EAP policy uncertainty is expected to remain high in H2 economies also experienced moderating growth, 2025, as the expiration of the U.S. tariff reprieve and with private consumption providing the main support. ongoing negotiations between major economies Private investment across the region remains subdued, continue to weigh on global growth momentum. weighed down by heightened policy uncertainty, High-frequency indicators signal subdued activity, elevated debt levels, and weaker business confidence. while global inflation trends remain mixed—headline Exports have shown resilience, driven by frontloading inflation has edged up slightly, while core inflation has ahead of anticipated tariff increases, although new eased notably. However, tariff-related cost pressures export orders remain weak. Monetary policy in the are beginning to sur face along supply chains, region has continued to be supportive, as inflation has especially in advanced economies, with manufacturing stayed low in major EAP economies. surveys indicating rising input and output prices. As a result, short-term inflation expectations have picked up in several major economies. FIGURE 1 FIGURE 2 Global growth is slowing amid increased trade Activity in EAP is slowing as external headwinds tension and heightened policy uncertainty spill over through trade, investment, and financial channels Real GDP growth, y/y, Percentage Real GDP growth, y/y, Percentage 20 8 7 10 6 5 0 4 3 -10 2 1 0 -20 EAP China EAP Advanced Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 Q4-2021 Q1-2022 Q2-2022 Q3-2022 Q4-2022 Q1-2023 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 excl. China Economies World 2015-19 2020-23 2024 2025f 2026f Advanced Economies Emerging Markets and Developing Economies Source: World Bank Global Economic Prospects. Source: World Bank EAP Economic Update. 20 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook Malaysia’s growth was supported by domestic demand The Malaysian economy expanded by 4.4 percent strengthened, supported mainly by private investment in Q2 2025 (Q1 2025: 4.4 percent), supported (Figure 4). Private investment rose by 11.8 percent (Q1 by domestic demand. Household consumption was 2025: 9.2 percent) partly due to higher machinery and resilient, growing by 5.3 percent (Q1 2025: 5.0 percent) equipment spending while public investment grew as labor market conditions continued to improve and by 13.6 percent (Q1 2025: 11.6 percent) on stronger income-enhancing policy measures such as higher capital expenditure by public corporations. On the minimum wages and civil service pay adjustments external front, exports moderated due to weaker were in place (Figure 3). Investment momentum commodity exports. This moderation, however, was FIGURE 3 FIGURE 4 The Malaysian economy expanded by 4.4 percent Investment momentum strengthened, supported in H1 2025, sustained largely by domestic demand mainly by expansions in private investment Contribution to real GDP growth and real GDP growth, y/y, Contribution to GFCF growth and GFCF growth, y/y, Percentage Percentage 10 20 8 6 15 Private Consumption 4 Public Consumption 2 GFCF 10 GFCF 0 Change in Inventory Private investment Net Exports 5 -2 Public investment Real GDP, y/y -4 -6 0 Q1-2023 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 Q1-2023 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 Source: World bank staff calculations based on DOSM data. Source: World bank staff calculations based on DOSM data. FIGURE 5 FIGURE 6 On a quarter-on-quarter, seasonally adjusted On the supply side, services, manufacturing and basis, the economy grew by 2.1 percent construction sectors expanded during the quarter Real GDP growth, q/q, Percentage (seasonally adjusted) Real GDP growth by economic activity, y/y, Percentage 3.5 20 3.0 2.9 15 2.5 10 2.1 2.0 1.8 5 1.5 1.5 0 1.0 -5 0.7 Services Manufacturing Agriculture Mining Construction 0.5 -10 0 -0.2 -0.5 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 Q2-2025 Q1-2025 Source: World bank staff calculations based on DOSM data. Source: World bank staff calculations based on DOSM and Malaysian Tourism Promotion Board data. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 21 PART ONE - Recent Economic Developments and Outlook partly offset by sustained demand for E&E goods and 2025: 5.0 percent), supported by firm-related and higher tourism inflows. Imports, meanwhile, increased government activities, while manufacturing rose by in tandem with stronger capital imports, reflecting 3.7 percent (Q1 2025: 4.1 percent), underpinned by ongoing investment activity. On a quarter-on-quarter, steady gains in domestic-oriented industries despite seasonally adjusted basis, the economy grew by 2.1 disruptions in refined petroleum output. Growth in the percent (Q1 2025: 0.7 percent) suggesting that the agriculture sector improved to 2.1 percent (Q1 2025: economy gained traction during the period after a 0.7 percent), driven by stronger oil palm production more modest pickup in Q1 2025 (Figure 5). For the amid favorable weather conditions. Meanwhile, whole of H1 2025, the economy moderated as external construction maintained double-digit growth at 12.1 sector activity slowed (H2 2024: 5.2 percent), while percent (Q1 2025: 14.2 percent), supported by activity domestic demand remained the main driver of growth. across residential, non-residential, and special trade subsectors. In contrast, the mining sector contracted On the supply side, services, manufacturing and further by 5.2 percent (Q1 2025: 2.7 percent) as oil and construction sectors expanded during the quarter gas output was curtailed by scheduled maintenance. (Figure 6). Services expanded by 5.1 percent (Q1 Export growth moderates amid decline in commodity exports On the external front, gross export growth in by frontloading of orders ahead of anticipated policy goods slowed to 3.3 percent in Q2 2025 (Q1 2025: changes—particularly related to U.S. tariffs (See Box 4.3 percent), as moderation in non-E&E and mining 1: Navigating U.S. tariffs)—which is expected to taper commodity exports offset sustained growth in towards the end of the year. Meanwhile, gross import E&E shipments (Figure 7). The slowdown in mining growth accelerated to 9 percent in Q2 2025 (Q1 2025: exports reflects maintenance work in the mining 2.8 percent), driven by stronger capital goods imports, sector and weaker commodity prices. The continued though partly weighed down by weaker intermediate export growth in E&E goods is driven by the digital goods imports. economy sustaining AI-related demand, and partly FIGURE 7 FIGURE 8 Export growth moderated in Q2 2025, weighed The current account surplus narrowed in Q2 2025 down by weaker commodity exports on smaller good surplus and wider secondary income deficit Contribution to export growth, y/y, Percentage Current account balance, Current account balance, RM Billion Percentage of GDP 10 60 4 5 40 3 0 20 -5 2 -10 0 1 -15 -20 -20 -40 0 Q1-2023 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 E&E Non E&E Goods Services Commodities Exports, y/y Secondary Income Current account balance (RHS) Primary Income Source: World Bank staff calculations based on DOSM data. Source: World Bank staff calculations based on DOSM data. 22 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook The current account surplus narrowed to 0.1 in the primary and services balances (Figure 8). The percent of GDP in Q2 2025 (Q1 2025: 3.4 percent). narrower services deficit was supported by stronger This was mainly attributable to a smaller goods travel receipts, while the primary income balance surplus—from the weaker mining exports alongside strengthened as resident multinational corporations stronger capital imports—and a wider secondary divest their overseas assets. income deficit, which more than offset improvements Investment activity is supported by project pipelines, but weaker sentiment weighs on momentum In H1 2025, approved investment increased as a has been an increase in investments in the ICT sector, share of GDP year-on-year, suggesting continued consistent with the global trend in greenfield FDI in the investment momentum into 2025, following growth digital economy.7 In 2025, investment momentum is in 2024. Private investment rose to 15.8 percent of expected to be sustained, with approved investment GDP in 2024 (2023: 14.8 percent; 2022: 14.3 percent), increasing to 19.6 percent of GDP in the first half of in line with the consecutive increase in approved the year, primarily driven by FDI in the ICT services projects and their subsequent realization (Figure 9). subsector (Figure 10). However, weaker business Approved projects in 2024 were mainly concentrated sentiment amid global trade uncertainties may weigh in the services sector, particularly in the ICT subsector, on investments.8 which led both FDI and DDI. Between 2022-2024 there FIGURE 9 FIGURE 10 Private investment in 2024 rose as share of GDP Investment momentum in 2025 is expected to in line with project approvals continue as project approvals increased as a share of GDP in H1 2025 Approved and actual private investment as a share of GDP, Approved investment as a share of GDP, Percentage Percentage 25 20 18 19.6 20 16 17.0 14 Primary sector 12 Manufacturing 15 11.0 FDI 7.9 10 Services (excl. ICT) 8 ICT 10 6 GFCF (private) 4 5 9.1 8.6 DDI 2 0 0 2017 2018 2019 2020 2021 2022 2023 2024 H1 2024 H1 2025 Source: World bank staff calculations based on MIDA and DOSM data. Source: World bank staff calculations based on MIDA data. 7 Between 2020-2024, global greenfield FDI grew by 80 percent, driven by the expansion of the digital economy and AI applications. Over this period, Malaysia received 14 percent of all announced digital economy projects among developing economies, ranking second after India (UNCTAD World Investment Report 2025). 8 The RAM Business Confidence Index fell to 41.1 in Q1 and 40.0 in Q2 2025, with scores below 50 indicating negative sentiment. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 23 PART ONE - Recent Economic Developments and Outlook BOX 1 Navigating U.S. Tariffs On August 1, 2025, the U.S. announced a revised9 19 percent tariff on imports from Malaysia, while semiconductor imports are under investigation for a separate, potentially higher tariff rate.10 This will replace the 10 percent baseline tariff that was announced on April 2 and took effect on April 5, 2025. This measure is part of a broader policy imposing tariffs on its trade partners to address the U.S. goods trade deficit. At 19 percent, Malaysia faces the same rate as its regional peers such as Thailand, Indonesia, the Philippines, and Cambodia— lower than Viet Nam, but higher than Korea, Rep., and Japan (Figure 11). In the initial announcement on April 2, 2025, goods exempted from the tariff11 under Annex II covered about 21 percent of Malaysia’s exports to the U.S.— mainly semiconductors. The continuation of these exemptions will depend on the outcome of a U.S. Department of Commerce investigation under Section 232 of the Trade Expansion Act of 1962, expected to conclude by December 2025.12 FIGURE 11 The U.S. announced different tariff rates on its trade partners, with Malaysia facing a revised 19 percent tariff rate Announced tariff rates, Percentage 60 50 40 39 30 30 20 25 25 19 19 19 19 19 20 20 20 10 15 15 0 Japan Korea, Rep. Philippines Malaysia Indonesia Thailand Cambodia Taiwan, China Sri Lanka Viet Nam Brunei India South Africa Switzerland Revised tariff (August 2025) April 2, 2025 tariff Source: U.S. Trade Representative Office and U.S. White House. In 2025, U.S. tariffs on Malaysian goods increased significantly, affecting the country’s E&E exporters. The effective tariff on Malaysia’s E&E exports increased from close to zero in Q1 2025 to about 4 percent in Q2 2025 (Figure 12). Statutory tariffs13 rose even higher, reaching around 8 percent in April–July under the 10 percent baseline tariff. The gap between statutory tariffs and the baseline reflects the fact that 55 percent of Malaysia’s E&E products were initially exempt from the 19 percent tariffs. In August, the full tariff of 19 percent has come into effect, significantly raising the burden on Malaysia’s E&E exporters, as some of the E&E products were not exempted in Annex II. Malaysia’s adjusted statutory tariffs remain higher than the ASEAN average. 9 The initial tariff rate announced on April 2, 2025 for each country was determined by halving the ratio of the U.S. goods trade deficit with that country to the total value of goods imported from it. Based on this formula, the initial tariff rate on imports from Malaysia was set at 24 percent. 10 A 100 percent tariff on semiconductor imports has been proposed on August 7, 2025, but the details of implementation mechanisms or an official timeline for its imposition had yet to be announced. 11 These exemptions include (i) articles covered under 50 USC 1702(b); (ii) steel, aluminum, and automotive articles already subject to Section 232 tariffs; (iii) copper, pharmaceuticals, semiconductors, and lumber; (iv) any articles that may be subject to future Section 232 tariffs; (5) bullion; and (v) energy and specific minerals not available in the U.S.. A full list of products at the HS8 level which are initially exempted from US tariffs can be found here. 12 While a 100 percent tariff on imported semiconductors has been announced—with exemptions for companies investing in U.S. production—the measure has not yet been formalized or assigned an official implementation timeline as of August 2025. 13 Statutory tariffs refer to the baseline most-favored-nation (MFN) rates specified in the U.S. Harmonized Tariff Schedule. Adjusted statutory tariffs are constructed by combining these MFN rates with additional duties such as Reciprocal tariffs, Section 201 tariffs on Solar Panels and accounting for product-level exemptions from Annex II. Effective tariffs, capture the actual incidence of tariffs in practice and they are generally lower than adjusted statutory tariffs due to exemptions, preferential trade programs, trade diversion, and other forms of tariff avoidance. 24 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook FIGURE 12 FIGURE 13 Malaysia faces higher adjusted statutory tariffs on There is relocation of U.S. E&E imports away from E&E products than the ASEAN average China, driven by products initially exempted from the tariffs in Annex II Adjusted effective tariff and statutory tariff, Percentage Exports of E&E and non-E&E products, Billion USD (real) 0.20 20 15 0.16 10 5 0 0.12 -5 -10 0.08 -15 -20 0.04 -25 Taiwan, China Mexico Viet Nam India Thailand Malaysia Korea Japan Germany China 0 Q1 Q2 April-July August Effective Tariff Statutory Tariff Malaysia ASEAN average E&E products under Annex II other E&E products Source: World Bank staff calculation based on trade data from U.S. Trade Source: World Bank staff calculation based on trade data from U.S. Trade Online, tariff data from U.S. international Trade Commission, and tariff Online, and tariff exemption data from Federal Register. exemption data from Federal Register. Note: The bars show the change in U.S. E&E imports from the top 10 source Note: Effective tariffs are calculated as collected duties divided by the countries between Q2 2024 and Q2 2025, measured in billion USD (real value of goods imported. Adjusted statutory tariffs refer to reciprocal terms). Solid bars represent Annex II products (tariff-exempt), while dashed tariffs adjusted for MFN rates and product exemptions under Annex II. Both bars represent other E&E products without tariff exemptions. effective and statutory tariffs are first computed at the HTS 10-digit level and then aggregated using 2023–2024 import weights to control for composition effects. ASEAN average is the average tariff across Indonesia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam. The whiskers indicate the range between the highest and lowest tariffs among these countries. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 25 PART ONE - Recent Economic Developments and Outlook Despite these tariff hikes, Malaysia’s E&E exports grew rapidly in H1 2025, supported by strong global demand and continuing trade diversion from China. In nominal terms, Malaysia’s E&E Future growth in exports grew by 16.1 percent in H1 2025 compared to the same period in 2024, led by shipments to Taiwan, China (+35 percent) the E&E sector is and the U.S. (+32 percent). Much of this growth reflects a broader still constrained relocation of the U.S. sourcing patterns away from China (Figure 13). by inadequate The U.S. imports from China fell sharply, while imports from Taiwan, Mexico, Vietnam, India, and Thailand rose significantly. Most of this R&D spending and shift was concentrated in E&E products that were initially exempted low indigenous from the 19 percent tariffs, which faced a much lower tariff burden innovation, with only than similar Chinese products. The relocation created opportunities for Malaysia’s E&E sectors, but the gains were relatively small 13–18 percent of compared to its peers. Estimates using bilateral trade data on E&E patents granted at products suggest that, on average, a 1 percentage point increase in the Malaysia Patent the U.S. tariffs on Chinese products raised Malaysia’s total exports of the initially exempted products by 1.7 percent and its exports Office filed by to the U.S. by 1.2 percent. By contrast, Vietnam’s total exports that Malaysian residents. were exempted rose by 2.8 percent and its exports to the U.S. by 2.9 percent (Figure 14). FIGURE 14 FIGURE 15 Higher U.S. import tariff on China’s E&E products The U.S. increased I.C. imports from Malaysia is associated with stronger growth in ASEAN E&E before and during COVID-19 but diversified away exports that were initially exempted from tariffs after the pandemic under Annex II Growth in E&E exports, Percentage Changes in import share, Percentage 4.0 24-25 I.C. (other) 3.5 22-23 3.0 18-21 2.5 24-25 (Advanced) 2.0 I.C. 22-23 1.5 18-21 1.0 -45 -30 -15 0 15 30 45 0.5 Changes in Imports Share, Percentage 0 China Malaysia Israel Malaysia Thailand Philippines Viet Nam Taiwan, China Korea, Rep. Thailand Exports to US Total Exports Viet Nam other Source: World Bank staff calculation based on CEPII BACI data, tariff data Source: World Bank staff calculation based on trade data from US Trade from U.S. international Trade Commission, and tariff exemption data from Online. Federal Register. Note: The bars represent changes in imports share between periods 2016- Note: This estimation controls for export growth in 2016–2017 and 2020– 2017 and periods 2024-2025(through June), (or 2022-2023, 2018-2021) 2021, tariff changes imposed by the U.S. and China on each exporter during of various. countries/regions into the U.S. market across 2 subcategories: 2018–2019, and the U.S./world total expenditure on E&E products. Bars advanced I.C. (HS code 854231), and other I.C. (other HS code under 8542). show the marginal growth in E&E exports under Annex II between 2019– These two subcategories account for 54 percent of Malaysia’s total E&E 2018 and 2022–2023 associated with a 1 percentage point increase in U.S. exports from 2024 to 2025 (through June) tariffs on Chinese E&E exports during 2018–2019. Whiskers indicate 90 percent confidence intervals. 26 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook The short-term gain from trade relocation mask potential structural risks faced by Malaysia’s E&E sector. Since 2021, Malaysia is losing market share in advanced ICs in the U.S. and other key destinations, as global demand shifts toward AI-related chips. While ICs account for over 54 percent of Malaysia’s E&E exports, its strengths lie mainly in legacy chips and back-end processes such as assembly and testing. These capabilities facilitate a rapid expansion of Malaysia’s U.S. market share between 2018 and 2021, as the U.S. diversified away from China due to higher tariffs. Since 2022, however, the AI wave has shifted demand toward more advanced chips such as GPUs and high-performance DRAM, predominantly manufactured by suppliers in Taiwan, Korea, Rep., and Israel (Figure 15). FIGURE 16 FIGURE 17 Malaysia’s E&E sector faces greater potential Malaysia’s R&D-to-sales ratio is relatively low exposure to tariffs than ASEAN peers Exposure to U.S. tariffs, Percentage Share of patents applied by R&D-to-Sales, residents, Percentage Percentage 30 100 8 25 80 6 60 20 4 40 15 2 20 10 0 0 China Taiwan, China Malaysia Singapore China Taiwan, China Malaysia Singapore 5 0 Malaysia Philippines Thailand Viet Nam Non-Semiconductor Semiconductor Exposure to U.S. tariff Share of patents applied by residence (LHS) Exposure to China E&E exports R&D-to-Sales (RHS) Source: World Bank staff calculations based on data from TiVA 2020. Source: World Bank staff calculations based on patent statistics from World Note: The calculations are based on the STATA package icio. Solid bars show Intellectual Property Organization and Taiwan Intellectual Property Office; the percentage of value added in each country’s E&E sector that could be as well as Compustat Global, Bursa Malaysia and Singapore Exchange for affected by the U.S. reciprocal tariffs. Dashed bars show the percentage of R&D and sales data. value added in each country’s E&E sector that could be affected by a shock Note: The bars show the share of granted patents applied by residents to China’s E&E exports. in each patent office. The dots compare the median R&D to sales ratio of E&E firms with reported R&D expenditure in Malaysia, China, Taiwan and Singapore from 2018 to 2023 The implementation of 19 percent tariffs in August might put Malaysia in a more vulnerable position relative to its regional peers. Estimates using TiVA input–output tables suggest that about 27 percent of domestic value added produced in Malaysia’s E&E sector could be directly exposed to future U.S. tariffs, the highest share among ASEAN countries (Figure 16). In addition, roughly 12 percent of Malaysia’s E&E value added is tied to China’s E&E exports, leaving it indirectly vulnerable to any negative shocks faced by China. Malaysia’s deep integration into global value chains in its E&E sector could add additional risks from disruptions elsewhere in the supply chain. Addressing these vulnerabilities will require Malaysia to upgrade its innovation capacity and strengthen domestic innovation capabilities. Future growth in the E&E sector is still constrained by inadequate R&D spending and low indigenous innovation, with only 13–18 percent of patents granted at the Malaysia Patent Office filed by Malaysian residents. R&D intensity within the sector also remains low: the median R&D-to-sales ratio is significantly below that of China and Taiwan, China (Figure 17). Increasing application-oriented R&D investment—through government subsidies, tax incentives, and stronger technology transfer between multinationals and domestic firms—would help enhance Malaysia’s competitiveness. To maximize the benefits of such initiatives, future policies could prioritize expanding domestic technological capacity, fostering technology transfer, and promoting spillovers across the broader ecosystem. Strengthening dialogue between private firms and the government will also be critical to ensure that policy design is closely aligned with industry needs. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 27 PART ONE - Recent Economic Developments and Outlook Excluding products such as semiconductors, which are currently under review for exemption, Figure 18 shows the main goods (at the HTS 8 level) that Malaysia exports to the U.S. that are subject to the 19 percent tariff. • Horizontal axis: Malaysia’s exports of each product to the U.S. as a share of Malaysia’s total exports to the U.S. (i.e. the product’s importance in Malaysia’s exports to the U.S.) • Vertical axis: Exports of each product by countries facing equal or higher new tariffs than 19 percent, as a share of world exports of that product to the U.S. (i.e., the market share of equal or higher-tariff countries in the U.S. market). • Bubble size: Malaysia’s exports of each product to the U.S. as a share of world exports of that product to the U.S., with percentages shown after the comma (i.e., Malaysia’s market share for that product in the U.S.). FIGURE 18 Malaysia’s exports to the U.S., which are subjected to the 19 percent tariffs, are also exported by countries facing different tariff rates Share of exports by countries with tariffs equal to or higher than 19 percent, Percentage 100 Photovoltaic cells assembled in modules or made up into panels, 13.4 Furniture of wood, of a kind used in the bedroom, 11.6 80 Medical or surgical gloves of vulcanized rubber other than hard rubber, 47.4 Photovoltaic cells, not assembled in modules or made up into panels, 31.2 60 Vacuum cleaners with self-contained Instruments and apparatus electric motor, 15.9 specially designed for Machines for the reception, telecommunications, 36.2 conversion and transmission or Parts and accessories of printers, 38.7 regeneration of voice, images or Static converters, 3.0 other data, 7.4 40 Parts and acessories of other printing, copying or facsimile machines, 23.7 Radiobroadcast receivers not operable w/o external power source, 18.8 20 Other boards, panels, consoles, desks, cabinets, etc., equipped with apparatus for electric control, 2.2 Catheters, cannulae and the like, used in medical, surgical, dental or veterinary sciences, 4.8 Lithium-ion batteries, 1.4 0 0 1 2 3 4 5 6 7 8 9 10 Share of Malaysia's exports to the U.S. by product in total exports to the U.S., Percentage Source: World Bank staff calculations based on USITC data. Note: The countries that have equal or higher new tariff rates than Malaysia (in descending order of tariff differentials with Malaysia) Syria, Laos, Myanmar (Burma), Switzerland, Iraq, Serbia, Algeria, Bosnia and Herzegovina, Libya, South Africa, Brunei, India, Kazakhstan, Moldova, Tunisia, Bangladesh, Sri Lanka, Taiwan, Vietnam, Cambodia, Indonesia, Pakistan, the Philippines, Thailand, and Malaysia itself. China is excluded here due to current uncertainties regarding its applicable new tariff rate. The figure provides a snapshot of Malaysia’s major tariff-affected exports to the U.S., alongside the tariff exposure of competing suppliers for the same products. For some products—such as photovoltaic cells— the majority of U.S. imports originates from countries facing similar or higher tariffs. For others—such as lithium-ion batteries—most of U.S. imports originates from countries facing lower tariffs. In such a landscape, sustaining the reliability, quality, and timeliness of Malaysia’s existing export base remains critical. Some of these products including lithium-ion batteries or photovoltaic cells also in fast-growing, green-technology segments, areas where Malaysia could leverage its manufacturing capabilities, established trade networks, and supply chain integration. Ultimately, substitution patterns are shaped not only by tariff differentials, but also by scalability, product quality, supply chain resilience, shifting demand, and product complementarity. 28 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook Given these developments, Malaysia could consider several policy measures to strengthen its export resilience. 1. In the short term, Malaysia could strengthen its efforts in providing technical assistance, training, and financial support to help Micro, Small, and Medium Enterprises (MSMEs) adjust to the new environment, and better leverage existing trade agreements with other trade partners. In May 2025, the government introduced a support package for MSMEs in response to the tariff measures, including allocations to the Malaysia External Trade Development Corporation (MATRADE) to help MSMEs expand into new markets. To build on these efforts, stronger public–private collaboration mechanisms could be established to keep businesses informed of trade policy changes, given MSMEs’ limited capacity to access and process such information on trade agreements.14 2. Malaysia could further liberalize its trade by reducing tariffs and non-tariff barriers (NTB) with its all its other trading partners.15 Doing so would help firms access cheaper inputs, thus reducing production costs. These gains are more likely to materialize if other countries take similar measures in liberalizing their trade. To facilitate this, Malaysia could pursue deeper trade integration with a broader network for trading partners to diversify the export base and reduce exposure to foreign trade policy risks, through deep trade agreements.16 Malaysia has also already taken steps toward reducing certain NTBs with the U.S. when negotiating tariff arrangements—such as streamlining halal and facility registration—and could continue exploring further liberalization in this direction with other trading partners. At the institutional level, Malaysia has also established the National Geoeconomic Command Centre to address shifts in the global trade landscape, including tariff shocks and NTBs. 3. Malaysia can use its ASEAN leadership to liberalize FIGURE 19 trade in services at a regional level. There is currently The services sector is the major contributor to significant room for gains for ASEAN, as it is the most jobs across ASEAN countries restricted region in terms of its services (See Box 2. Share of employment, Percentage ASEAN as Malaysia’s Growth Catalyst). Moreover, the share of services in economic activity and employment 100 increased significantly over the last decade (World Bank, 90 2024).17 The services sector is the biggest contributor 80 to jobs across ASEAN countries (Figure 19). Hence, 70 while recent tariff discussions have primarily focused on goods, liberalizing trade in services can further 60 stimulate job creation and economic growth. There is 50 also an increasing share of the value and differentiation 40 of manufactured products which depends on the 30 62.4 59.2 services embodied or bundled in the goods. In other 49.1 47.8 20 words, other sectors, such as the manufacturing sector, 35.8 10 are increasingly reliant on services in production. Modern manufacturing is a heavy user of high-tech 0 services inputs, and its competitiveness relies on Indonesia Malaysia Philippines Thailand Viet Nam access to cutting-edge suppliers at the most favorable prices (OECD, 2017).18 Therefore, reforming services trade benefits consumers and enhances domestic Services Industry Agriculture productivity and economic performance not just within services, but also across other sectors. Source: World Bank staff calculations based on ILO estimates. There is a specific chapter on support for SMEs in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—to which 14 Malaysia is a signatory—that aims to create a supportive environment for SMEs in international trade and investment opportunities. 15 World Bank East Asia Pacific Economic Update, April 2025. 16 Deep Trade Agreements are reciprocal agreements between countries that include provisions beyond trade, such as international flows of investment and labor, and the protection of intellectual property rights and the environment. Deep Trade Agreements have been shown to increase trade not only between participating countries, but also with third parties. 17 World Bank, 2024. Services Unbound: Digital Technologies and Policy Reform in East Asia and the Pacific. 18 OECD, 2017. Services Trade Policies and the Global Economy. https://www.oecd.org/content/dam/oecd/en/publications/reports/2017/06/services- trade-policies-and-the-global-economy_g1g7a174/9789264275232-en.pdf MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 29 PART ONE - Recent Economic Developments and Outlook BOX 2 ASEAN as Malaysia’s Growth Catalyst: Measuring Spillover Effects ASEAN’s economic potential is immense, yet its low level of intra-regional trade highlights significant untapped opportunities for deeper integration and a stronger regional market. As a key driver of economic growth among its member states, ASEAN fosters development primarily through two channels. First, it enhances scale by acting as a unified bloc, making it more efficient and attractive for non-ASEAN countries to negotiate trade agreements with the region rather than with individual nations. Second, it broadens economic scope by fostering deeper regional cooperation, facilitating the diversification of industries, and encouraging cross-border investments, innovation, and knowledge transfer. This expansion allows member states to access new markets, participate in regional value chains, and enhance their global competitiveness. However, intra-ASEAN exports remain low, accounting for only about 20 percent of total goods and services exports in 2023.19 This indicates that ASEAN nations trade more with the rest of the world than with each other. This partly reflects policy and structural factors such as the absence of a unified trade policy in the region: ASEAN’s regional cooperation differs notably from large common markets such as the EU or the Customs Union of the Eurasian Economic Union, as it lacks a common currency, unified trade policy, or customs union. The low intra-ASEAN trade also suggests missed opportunities to expand and strengthen trade within ASEAN. One major constraint on ASEAN’s market integration is the persistently high barriers to trade in services. While ASEAN-wide initiatives, complemented by broader free trade arrangements such as RCEP and CPTPP, are estimated to reduce tariffs lines by 90-93 percent and 99 percent20, respectively—trade in services remains highly restrictive based on OECD’s Services Trade Restrictiveness Index (STRI) (Figure 20). The index captures services trade barriers such as restrictions to foreign entry, restrictions of movement of people, barriers to competition, and regulatory transparency. ASEAN is currently the most restrictive region for trade in services in the world, with nearly twice the level of restrictions compared to the EAP region excluding ASEAN. Most of these barriers are restrictions to foreign entry. Some barriers are being addressed, notably, expediting the finalization of the ASEAN Digital Economic Framework Agreement that would facilitate the expansion of trade in digital services. Additionally, adopting “mini-lateral” agreements that liberalize services, such as easing restrictions on skilled labor mobility among a subset of ASEAN members, may offer a more efficient approach to fostering greater regional integration. An example is the mutual halal certification between Malaysia and Indonesia that allows their respective halal logos, JAKIM and BPJPH, to be recognized for products exported between the two countries.21 19 Source: ASEANstats 20 Source: Asia House, 2020: “RCEP: A guide to the world’s largest trade agreement”; Banh Thi Hang, Ni Xu, and Faith Tan, 2024: “Evaluating Tariff Efficiency: A Comparative Analysis of RCEP and Pre-Existing Preferential Trade Agreements in ASEAN” 21 Source: BPJPH 30 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook FIGURE 20 ASEAN experiences greater restrictions on services trade compared to other regions Services Trade Restrictiveness Index 2024 ASEAN 0.34 South Asia 0.29 Middle East & North Africa 0.24 Sub-Saharan Africa 0.21 Europe & Central Asia 0.20 Latin America & Caribbean 0.19 North America 0.19 EAP (excl. ASEAN) 0.18 0 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 Source: World Bank staff calculations based on OECD data. Note: The ASEAN region includes Viet Nam, Indonesia, Philippines, Thailand, Singapore, Malaysia, while the EAP (excluding ASEAN) covers New Zealand, Australia, Japan, China, and Korea. The Europe & Central Asia (ECA) region includes Kazakhstan, Norway, Estonia, Switzerland, Luxembourg, Italy, Poland, Latvia, Sweden, Spain, Belgium, Finland, France, Hungary, Greece, Denmark, Czechia, Ireland, Netherlands, Iceland, Austria, United Kingdom, Portugal, Lithuania, Slovak Republic, Germany, Slovenia, Türkiye, and Russia. The Latin America & Caribbean (LAC) region comprises Chile, Colombia, Brazil, Peru, Costa Rica, and Mexico. The Middle East & North Africa (MENA) region includes Israel, and the North America region covers the U.S. and Canada. South Asia includes India, and Sub- Saharan Africa is represented by South Africa. Despite low levels of intra-regional trade, ASEAN remains Malaysia’s largest trading partner, surpassing other major economies. ASEAN has been Malaysia’s largest merchandise trade partner since 1990, with its share remaining relatively stable over time (2023: 27.4 percent). In contrast, the shares of the U.S. and Japan have declined (both below 10 percent in 2023) and overtaken by China (2023: 17.1 percent) (Figure 21). Among ASEAN partners, Singapore is Malaysia’s largest trading partner, accounting for around 15 percent of Malaysia’s total merchandise trade. This partly reflects Singapore’s role as a regional re-export hub. Thailand follows with just under 5 percent, while Indonesia, Vietnam, and the Philippines contribute approximately 4 percent, 3 percent, and 2 percent, respectively.22 However, Vietnam has demonstrated a steadily growing share, highlighting its increasing importance in Malaysia’s regional trade network (Figure 22). Similarly, for trade in services, ASEAN remains Malaysia’s largest partner (2023:28.5 percent) (Figure 23), with Singapore accounting for the largest share among ASEAN members (2023:19.7 percent).23 FIGURE 21 FIGURE 22 ASEAN is Malaysia’s leading trade partner in Singapore accounts for the largest share of merchandise Malaysia’s reported goods trade in ASEAN Malaysia's trade share by partner, Share of total Malaysia Malaysia's trade share by partner, Share of total Malaysia merchandise trade, Percentage merchandise trade, Percentage 30 20 ASEAN 18 25 16 14 Singapore 20 12 China 15 10 8 United Thailand 10 Indonesia States 6 Viet Nam Japan 4 Philippines 5 Brunei 2 Darussalam Myanmar 0 0 Cambodia Lao PDR 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 2023 Source: World Bank staff calculations based on DOTS. Source: World Bank staff calculations based on DOTS. 22 The remaining ASEAN member states—Brunei, Cambodia, Laos, and Myanmar—each contribute less than 1 percent of Malaysia’s trade. 23 Indonesia and Thailand each account for approximately 3 percent, while Vietnam contributes 1 percent. The Philippines and Brunei each hold a share of 0.7 percent, followed by Cambodia (0.12 percent), Myanmar (0.08 percent), and Laos (0.02 percent). MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 31 PART ONE - Recent Economic Developments and Outlook FIGURE 23 FIGURE 24 ASEAN is Malaysia’s top trade partner in services Singapore leads in Malaysia’s services trade within ASEAN Malaysia's trade share by partner, Share of total Malaysia Malaysia's trade share by partner, Share of total Malaysia services trade, Percentage services trade, Percentage 35 25 30 ASEAN 20 Singapore 25 15 20 United 15 States 10 Indonesia Thailand 10 Viet Nam China Philippines 5 Brunei 5 Darussalam Japan Myanmar Cambodia 0 0 Lao PDR 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Source: World Bank staff calculations based on OECD-WTO data. Source: World Bank staff calculations based on OECD-WTO data. Malaysia benefits most from positive growth spillovers from its top three ASEAN trading partners— Indonesia, Singapore, and Thailand. Our analysis shows, specifically, after controlling for common shocks, the estimated spillover effects on Malaysia’s per capita income are 0.58 percent from Indonesia, 0.33 percent from Singapore, and 0.27 percent from Thailand (Figure 25). In other words, an unexpected 1 percent increase in per capita income in these countries is associated with a 0.58 percent, 0.33 percent, and 0.27 percent increase in Malaysia’s per capita income, respectively. These findings underscore the importance of deepening trade and economic integration within ASEAN. Amid rising protectionism and intensifying geopolitical competition, ASEAN’s role in regional economic integration is becoming increasingly significant. Closer intra-regional ties can magnify growth spillovers, strengthen regional resilience, and foster a more synchronized and sustainable economic trajectory across member states. FIGURE 25 Indonesia has the largest growth spillovers24 to Malaysia ASEAN growth spillovers to Malaysia, Percentage 0.7 0.58 0.6 0.5 0.4 0.33 0.3 0.27 0.2 0.1 0 Indonesia Singapore Thailand Source: Author’s calculations. 24 Growth spillovers are defined as contemporaneous impulse responses of growth in the destination country to growth in the source country (Yilmazkuday, 2025). 32 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook Unemployment rates remain low as demand for labor continues to rise In Q2 2025, both labor force participation Labor market tightness, measured as the ratio of and employment rates improved. Labor force job vacancies to unemployed workers, rose slightly participation rose to 70.8 percent (Q2 2024: 70.7 to 0.37 (Q2 2024: 0.35), which reflects continued percent), measuring 83.3 percent for males and 56.4 strong demand for labor (Figure 27). This is still percent for females. Employment also increased, slightly below what was observed pre-pandemic in with the national unemployment rate declining to 2019. On the other hand, in many advanced economies, 3.0 percent (Q2 2024: 3.2 percent) (Figure 26). The labor market tightness had already returned to or unemployment rate for a younger segment of the labor even exceeded pre-COVID-19 levels (OECD 2025). force (aged 15–34) remained relatively stable compared This could be attributed to structural reasons, such as to the same quarter last year, with a slight increase for population ageing, digital and green transformation those aged 15-24 to 9.9 percent (Q2 2024: 9.8 percent) and poor job quality in certain sectors (OECD 2025). and for those aged 24-34 to 2.4 percent (Q2 2024: 2.1 The majority of new job vacancies are found in semi- percent). In contrast, unemployment among prime- skilled roles, which account for 56.2 percent of all age and older workers declined significantly, with the available positions (compared to 56.6 percent of total rate for those aged 35-44 dropping to 0.8 percent employment). Skilled roles make up 24.6 percent, while (Q2 2024: 1.6 percent), for those aged 45-54 to 1.3 low-skilled positions represent 19.2 percent (compared percent (Q2 2024: 1.5 percent), and for those aged to 30.3 percent and 13 percent of total employment, 55–64 falling to 1.9 percent (Q2 2024: 3.2 percent). respectively). Looking at the distribution by sector, Skills-related underemployment (SRU)25 remains to be manufacturing holds the largest—and growing— a structural issue in the labor market. Latest data shows share of these openings at 57.7 percent, followed by that in Q2 2025, the SRU rate is 35.6 percent overall, agriculture at 16.3 percent, construction at 13 percent, and is markedly higher for women (40.7 percent) and services at 12.7 percent. Within the manufacturing compared with men (30.8 percent), as well as younger sector, 31.3 percent of job vacancies are in electrical, workers (74.4 percent for 15-24 year olds, 40.9 percent electronic, and optical products, while 18 percent are for 25-34 year olds). in petroleum, chemical, rubber, and plastic products. FIGURE 26 FIGURE 27 Nationwide unemployment declined, especially ...while labor market tightness is rising, indicative among older workers... of ongoing strong demand for labor Unemployment rate by age group, Percentage Job vacancies per unemployed person 14 0.45 0.40 12 0.35 10 0.30 8 0.25 6 0.20 0.15 4 0.10 2 0.05 0 0 Q1-2022 Q3-2022 Q1-2023 Q3-2023 Q1-2024 Q3-2024 Q1-2025 Q1-2019 Q3-2019 Q1-2020 Q3-2020 Q1-2021 Q3-2021 Q1-2019 Q3-2019 Q1-2020 Q3-2020 Q1-2021 Q3-2021 Q1-2022 Q3-2022 Q1-2023 Q3-2023 Q1-2024 Q3-2024 Q1-2025 15-24 25-34 35-44 Labor market tightness 45-54 55-64 Unemployment Rate Source: DOSM Source: World Bank staff calculations based on DOSM data. 25 Defined as those with tertiary education but are working in semi-skilled or low-skilled jobs. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 33 PART ONE - Recent Economic Developments and Outlook Labor productivity growth and employment growth Median wages and year-on-year real median wage slowed in Q2 2025. Overall, the year-on-year labor growth for formal sector employees showed an productivity growth fell to 2.8 percent (Q2 2024: 3.1 uptick in March 2025. In March 2025, the median percent) but marginally improved from Q1 2025 wage for formal sector employees rose to RM3,000, (2.5 percent) (Figure 28). This decline was primarily reflecting a 4 percent annual increase in real median driven by the mining and quarrying and construction wages (March 2024: RM2,844) (Figure 30 and 31) sectors, which registered growth of –5.8 percent (Q2 However, this figure is slightly below the recent peak 2024: 3.0 percent) and 11 percent (Q2 2024: 16.2 of RM3,064 recorded in January 2025. This upward percent) respectively. In contrast, services was the wage trend was evident for both men and women, with only sector to accelerate, rising to 2.9 percent year- men earning a median wage of RM3,000 and women on-year (Q2 2024: 2.1 percent). Notably, construction earning RM2,982 in March 2025. Notably, the gender continued to record the highest productivity growth wage gap has continued to narrow since December among all sectors, despite the overall decline, likely 2024. Year-on-year real wage growth for formal sector due to greater adoption of advanced technologies employees remains positive. Breaking this down in construction methods. 26 Furthermore, the year- by sector27, formal workers in the construction and on-year employment growth rate moderated to services sectors reported the highest median wages, 1.6 percent (Q2 2024: 2.8 percent) (Figure 29). The each at RM3,000. The manufacturing sector followed slowdown was led by the services sector, where with a median wage of RM2,809, while the agriculture employment growth decelerated to 2.1 percent (Q2 sector recorded the lowest median wage at RM2,200. 2024: 3.7 percent), though the services sector remains Looking at the average year-on-year real median wage to record the highest employment growth overall. growth, there are clear differences across sectors. The Within the services sector, the food and beverage and agriculture sector posted the highest growth rate at 8.4 accommodation subsector recorded the strongest percent, followed by manufacturing at 4.7 percent and job gains. Agriculture and manufacturing sectors also services at 2.6 percent. In contrast, the construction weakened, with employment growth slipping to -0.1 sector experienced a negative real wage growth rate percent (Q2 2024: 1.1 percent) and 1.0 percent (Q2 of -0.2 percent. Overall, the consistent year-on-year real 2024: 1.6 percent), respectively. wage growth indicates a positive long-term trend in wage increases for formal sector employees in Malaysia. FIGURE 28 FIGURE 29 Labor productivity growth continues to be ...while employment growth is on a downward positive, although it is modest... trend Labor productivity by sector, y/y, Percentage Employment growth by sector, y/y, Percentage 25 4.5 4.0 20 3.5 15 3.0 2.5 10 2.0 5 1.5 0 1.0 0.5 -5 0 -10 -0.5 Agriculture Mining and quarrying Manufacturing Construction Services Total Agriculture Mining and quarrying Manufacturing Construction Services Total Q1-2024 Q2-2024 Q3-2024 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 Q4-2024 Q1-2025 Q2-2025 Source: World Bank staff calculations based on DOSM data. Source: World Bank staff calculations based on DOSM data. 26 Source: NST (2025). Data for mining sector is intentionally left out due to exceptionally high median wages accrued to a very small share of workers (0.6 percent of formal 27 employees in March 2025). 34 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook FIGURE 30 FIGURE 31 Median wages have increased, and the gender ...reflecting overall positive year-on-year real gap is narrowing... wage growth for formal sector employees Monthly median wage Gender gap Real median wage growth by gender, y/y, Percentage by gender, RM 3,200 140 9 8 120 3,000 7 100 6 2,800 80 5 60 4 2,600 3 40 2,400 2 20 1 2,200 0 0 01/2023 03/2023 05/2023 07/2023 09/2023 11/2023 01/2024 03/2024 05/2024 07/2024 09/2024 11/2024 01/2025 03/2025 01/2023 03/2023 05/2023 07/2023 09/2023 11/2023 01/2024 03/2024 05/2024 07/2024 09/2024 11/2024 01/2025 03/2025 All Male Female Gender gap (RHS) All Male Female Source: DOSM Source: DOSM Malaysia has made a positive step to protect gig workers, though the impact on the labor market remains to be seen. The Gig Workers Bill, passed in The Gig Workers Bill, August 2025 in parliament, marks a significant step passed in August 2025 toward in establishing a coherent legal framework for in parliament, marks a platform-based and other gig work in Malaysia. The bill is structured around four core pillars: (i) definition significant step toward of gig workers, (ii) minimum standards for income in establishing a coherent transparency and payment practices, (iii) dispute legal framework for resolution mechanisms and (iv) social protection. Malaysia joins other countries that have introduced platform-based and other legislation to appropriately classify and protect gig work in Malaysia. workers in the gig economy, although outcomes from this exercise have been mixed — with some cases (e.g. the UK) expanding worker rights and protections, while arrangements, expanding career-matching programs, others (e.g. Spain and California) faced platform exits, improving access to workplace childcare facilities, higher costs, or prolonged legal disputes.28 and introducing targeted upskilling and reskilling programs for women returning to work. These broad The recently tabled 13th Malaysia Plan (MP) sets measures echo the key findings of the Bank’s Inclusive out the government’s ambition to make the labor Employment Practices Report 29, which highlights the market more inclusive for women and, in tandem, importance of flexible work, childcare support, and raise female labor force participation. Among the structured return-to-work pathways as critical enablers priorities outlined are strengthening flexible work of women’s sustained participation in the workforce. 28 Source: Ghorpade, Yashodhan, Amanina Abdur Rahman, Alyssa Farha Jasmin, Natalie Fang Ling Cheng, and Soonhwa Yi (2024) “Informal Employment in Malaysia: Trends, Challenges and Opportunities for Reform” (February), World Bank, Washington, DC. 29 World Bank. Inclusive Employment Practices Survey: Malaysia 2024. © World Bank. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 35 PART ONE - Recent Economic Developments and Outlook BOX 3 Emerging Technology and Jobs in Malaysia The rapid advancement of new technologies, such as automation and AI is transforming economies globally by reshaping the nature of work, influencing employment and wages. Over successive industrial revolutions since the 18th century, technology has evolved from mechanizing manual labor to automating cognitive and non- routine tasks, and impacts on the labor market have been of ongoing concern. Technology can impact labor demand through two channels. First, it can create a displacement effect, where technology such as automation displaces tasks that were previously undertaken by labor, leading to a substitution of capital for labor. Second, technology also has a labor enhancement effect, where the substitution of cheaper machines for labor reduces overall cost of production, boosting demand and subsequently increasing the demand for labor in non-automated tasks. It can also boost labor productivity and lead to the creation of new tasks or roles for labor that complement these technologies. Hence, the net impact of technology on labor demand—and subsequently wages—depends on the balance between these opposing effects (World Bank 2024, Acemoglu and Restrepo 2019). Evidence for Malaysia shows a sizeable share of the workforce being at risk of automation. Figure 32 shows that 23.6 percent and 17.9 percent of workers are engaged in jobs with high importance in routine manual tasks and routine cognitive tasks respectively. These shares provide some indication of the susceptibility of the tasks performed by Malaysians—particularly in agriculture and manufacturing sectors (Abdur Rahman et al. 2024). Using computerization scores by Frey and Osborne (2017), Abdur Rahman et al. (2024) found that 80.5 percent of workers in low-skilled occupations have jobs with high likelihood of automation, followed by workers in mid-skilled occupations at 67 percent and those with high-skilled occupations at only nine percent. This translates to 48 percent of Malaysian workers being at high automation risk (Figure 33). Having said this, automation technologies can simultaneously decrease the demand for labor by taking over the tasks performed by workers and increase the demand for labor in non-automated tasks. As a result, the actual impact of automation on the demand for labor is unclear and will depend on other factors, such as the cost of acquiring and maintaining the technology. FIGURE 32 FIGURE 33 A sizeable share of Malaysia workers is engaged ...with highest likelihood of automation more in routine tasks... prominent among low-skilled and mid-skilled workers Share of Malaysian workers employed in jobs with high task Share of employment by probability of automation and importance, 2021, Percentage occupational skill level, 2021, Percentage 100 100 7.3 19.5 80 80 25.7 60.9 60 60 48.2 40 36.7 40 80.5 67.0 22.4 23.6 17.9 30.1 20 20 9.0 0 0 Non-routine Non-routine Non-routine Routine Routine High-skilled Mid-skilled Low-skilled analytical interpersonal physical cognitive manual High probability Medium probability Low probability Source: World Bank staff calculations using data from LFS (DOSM) Source: Abdur Rahman et al (2024) using data from LFS (DOSM) and Frey Note: A job that requires high importance in a task category is that with a and Osborne (2017) task importance score within the top three deciles of the overall distribution of task importance scores in the country within a given year. The shares do not sum to 100 percent by any measure, since one job can be highly intensive in more than one task category. 36 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook Looking ahead, the advent of AI is already bringing changes to the labor market, globally and in Malaysia. AI differs from traditional automation by primarily affecting cognitive tasks, including highly non-routine cognitive tasks (World Bank 2024). AI technologies expose workers in both routine and increasingly non-routine cognitive task occupations to automation, but they also offer opportunities to enhance productivity and create new job tasks or roles. A recent paper by Cheng et. al (2025) estimates that 28 percent of the Malaysian workforce are “highly exposed” to generative AI technologies, while another 17 percent fall in the medium-high exposure category (Figure 34). Overall, nearly half of the workforce has at least 40 percent of its tasks substitutable by today’s generative AI capabilities, with these tasks primarily reflecting structured, screen-based, non-physical work. This exposure is heterogenous: women, younger workers, clerical workers, and urban workers are more likely to be in higher-AI- exposed jobs. Generative AI is most likely to impact mid- to upper-middle-tier roles, with AI exposure plateauing at the highest levels of wages. Cheng et. al (2025) suggest that this could indicate that highly-paid occupations positions, which typically involve a high degree of creativity and complex socio-emotional judgment—skills that are difficult for AI to perform—are relatively less likely to be affected. To fully leverage the benefits of AI and address its potential downsides, it is crucial to implement targeted policies and invest in education, digital infrastructure, and social protection. This approach will help ensure that the advantages of AI are widely shared and that the workforce is well-prepared for the changing job landscape. FIGURE 34 FIGURE 35 45 percent of the Malaysian workforce face ...with AI exposure increasing with wages, elevated exposure to generative AI technology... before plateauing at the very top of the income distribution Share of Malaysian workers by quartiles of AI exposure, 2021, Share of employment by probability of automation and Percentage occupational skill level, 2021, Percentage 6 5.4 0.6 (36%) 0.5 5 4.2 (28%) 0.4 Average AI score 4 2.9 0.3 Millions (19%) 2.5 3 (17%) 0.2 2 0.1 1 0 Bottom 10% 2 3 4 5 6 7 8 9 Top 10% 0 Low Medium Medium High Low High Wage deciles Source: Cheng et al (2024) using data from LFS (DOSM) Source: Cheng et al (2025) using data from SWS (DOSM) MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 37 PART ONE - Recent Economic Developments and Outlook Poverty and inequality remain a concern, with persistent spatial divides Malaysia has made significant strides in reducing Between 2004 and 2022, however, their income growth poverty, yet challenges persist, particularly was more pro-poor than that of other main ethnic in rural areas. According to the latest official groups, namely Chinese and Indian. For most of this estimates from 2022, hardcore poverty30 fell to just period, Bumiputera income growth outpaced that 0.2 percent nationally, with several states achieving of other ethnic groups within the same decile of the the government’s zero-pover ty target. However, national income distribution, with the lowest-income 6.2 percent of households, approximately 490,000, Bumiputera households recording the fastest gains. still lived below the national average poverty line This is reflected in a sharp decline in the share of of RM2,589 per month. Despite declining more Bumiputera persistently living in poverty, from 30–35 quickly than urban poverty, rural poverty remained percent in 2004–07 (two to three times higher than predominant, affecting 12 percent of rural households Chinese and Indian rates) to below 5 percent by 2019– compared to 4.5 percent in urban areas. Nationally, the 22, approaching the levels of other ethnic groups. incidence of absolute poverty was particularly severe Nonetheless, this progress was concentrated among in rural Sabah, where 28.5 percent of households Bumiputera in Peninsular Malaysia, while those in East remained having insufficient income to meet minimum Malaysia did not experience similar improvements, living standards in 2022. These figures highlight that underscoring the importance of geographic disparities while Malaysia’s achievements in poverty reduction are in shaping poverty outcomes.32 commendable, significant pockets of poverty continue to pose a critical challenge.31 Malaysia is on the cusp of attaining high-income country status, yet the prevailing level of inequality The intersection of ethnicity and location continues suggests that the benefits of high-income to shape the pace of progress in poverty reduction. prosperity remain inaccessible to a substantial Historically, Bumiputera, the countr y’s majority portion of the population. With a Gini index of 3933, population, have been the most disadvantaged. income inequality in Malaysia remains notably higher FIGURE 36 Malaysia nears high-income status, but many of its citizens remain excluded due to income inequality GNI per capita, USD thousands Share of population, Percentage 20 100 High Income 80 15 60 10 40 5 Upper-middle Income 20 Lower-middle Income 0 0 1987 1991 1995 1999 2003 2007 2011 2015 2019 2023f 2027f GNI per capita (left-axis) Share of high-income people (right-axis) Source: World Bank (2025): A Fresh Take on Reducing Inequality and Enhancing Mobility in Malaysia. Note: High-income population denotes the segment of the population whose household income exceeds the threshold defined for high-income countries (referred to as the Prosperity Gap). The projections for the Prosperity Gap are based on the assumption of distributionally neutral growth. 30 At the average food poverty line income of RM1,198. Source: DOSM, Poverty in Malaysia 2022. 31 DOSM, Poverty in Malaysia 2022. 32 World Bank (2025) A Fresh Take on Reducing Inequality and Enhancing Mobility in Malaysia. 33 The Gini index is calculated using the 2022 HIES, based on per capita income instead of the total household income estimates from DOSM. 38 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook compared to both recently transitioned economies (a predetermined life circumstances rather than individual mean Gini index of 31), and established high-income choice, strengthening equal opportunity by improving countries (a mean Gini index of 30). Meanwhile, income access to quality education and healthcare from an mobility remains limited at the bottom, with more than early age is crucial. Although access to basic services half of those in the poorest 20 percent remaining at the has improved, closing the quality gap is essential for bottom, while nearly two-thirds of those in the richest growth and equity, enabling all individuals to build 20 percent are likely to retain their position at the quality human capital. Aligning skills development with top. Without further efforts to address inequality and the creation of high-skill employment opportunities is enhance economic mobility, around 6 in 10 Malaysians also necessary to boost labor income and economic could still have incomes below the high-income mobility by enhancing productivity. threshold when this milestone is reached (Figure 36). A combined series of revenue and spending reforms Reducing inequality and enhancing mobility can could reduce inequality in Malaysia by an additional stimulate growth by fostering investment in 4 percentage points, positioning Malaysia above human capital, economic participation, and social the upper-middle-income country average and cohesion. The 13MP’s inclusion of “Enhancing Social closer to high-income countries. 34 Strengthening the Mobility” as one of its four pillars reflects Malaysia’s social protection system by setting strategic spending commitment to improving the economic standing of priorities, improving targeting across the income Malaysians and ensuring equitable growth. It provides distribution, and reducing fragmentation to improve a clear framework to align reforms in education, efficiency, is crucial to reduce inequality. Furthermore, healthcare, labor markets, and social protection increasing fiscal space, such as by broadening the tax towards building a fairer and more dynamic society. base and phasing out untargeted subsidies, is essential In Malaysia, with over 60 percent of income inequality to finance greater equity-improving investments, linked to inequality of opportunity stemming from particularly in education and healthcare. 34 World Bank (2025) A Fresh Take on Reducing Inequality and Enhancing Mobility in Malaysia. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 39 PART ONE - Recent Economic Developments and Outlook Headline inflation continued to moderate Inflation continued to ease in H1 2025, reflecting developments (Figure 38). Meanwhile, core inflation both domestic and external factors. The first two remained unchanged at 1.8 percent in July (June quarters saw a moderate inflation environment, with 2025: 1.8 percent). At the subnational level, four states headline easing to 1.3 percent (Q2 2025) from 1.5 recorded inflation rates above the national average: percent (Q1 2025) and core remaining broadly stable Negeri Sembilan, Selangor, Johor and Melaka. around 1.8 to 1.9 percent. In July 2025, headline inflation rose slightly to 1.2 percent from 1.1 in the Inflation pervasiveness35 in the first two quarters previous month (Figure 37). The increase was driven of 2025 remained contained, with a slight rise in by price increases in services, namely in insurance and Q1 (43 percent) followed by an easing in Q2 (42 financial as well as restaurants and accommodation. percent). The share of CPI items registering price This was offset by a decline in price of food at home increases stayed broadly in line with the historical and moderation in housing and utilities including average, reflecting lower global commodity prices. in electricity and gas. The overall trend in inflation Overall, it remained broadly in line with the long-term moderation is broadly consistent with regional inflation average (Figure 39). FIGURE 37 FIGURE 38 In July 2025, headline inflation moderated, driven This is also in line with regional trends where by lower inflation in non-core components headline inflation has also moderated or stabilized Contribution to CPI, y/y, Percentage CPI, y/y, Percentage 5 10 4 8 3 2 6 1 4 Viet Nam 0 -1 2 Indonesia Phlippines 07/2021 10/2021 01/2022 04/2022 07/2022 10/2022 01/2023 04/2023 07/2023 10/2023 01/2024 04/2024 07/2024 10/2024 01/2025 04/2025 07/2025 Malaysia 0 Thailand Others Food and non-alcoholic -2 Communication beverages 01/2023 03/2023 05/2023 07/2023 09/2023 11/2023 01/2024 03/2024 05/2024 07/2024 09/2024 11/2024 01/2025 03/2025 05/2025 Housing, water, electricity, gas Headline in ation Transport Core in ation Source: World Bank staff calculations based on DOSM data. Source: World Bank staff calculations based on DOSM and Haver data. FIGURE 39 Inflation pervasiveness remained contained in H1 2025 Contribution to CPI, y/y, Percentage 60 50 56 2011-2019 average 45.6% 51 49 40 44 43 43 41 42 39 40 30 36 20 10 0 Q4-2022 Q1-2023 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 Source: World Bank staff calculations based on DOSM data. 35 Inflation pervasiveness refers to the extent to which inflation is spread throughout the economy. When inflation is pervasive, it means rising prices are not limited to specific items or areas but are affecting a broader range of products and services. 40 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook The overnight policy rate (OPR) was kept at 2.75 activity including the ongoing implementation of percent in September 2025, after a reduction of initiatives under 13MP. At the same time, the balance 25 basis points in July 2025 to 2.75 percent. The of risks to the growth outlook remains tilted to the central bank expects inflation to remain moderate for downside, stemming mainly from slowing global trade, the remainder of the year, with pressures from global weaker investor sentiment, and lower-than-expected commodity prices likely to stay contained, contributing commodity production. Against this backdrop, the to stable domestic cost conditions. Growth is expected central bank views the that monetary policy remains to continue to be supported by resilient domestic appropriately supportive of growth while preserving demand as well as the expansion in investment price stability. Economic growth continued to be supported by expansion of financial intermediation Credit to the private sector continued to expand, growth rate observed in the latter half of 2024. Non- albeit at a more moderate pace in the first half of SME loans saw a similar trend, growing slightly by 0.1 2025. Outstanding loans to the private non-financial percent vis-à-vis 2.2 percent between end-June to sector increased by 2.2 percent in the 6-month period end-December 2024. from January to June 2025 versus the 3.3 percent growth recorded during the prior 6-month period.36 Credit growth was supported by lower lending and Outstanding household loans grew by 2.6 percent 37 deposit rates in the first half of 2025. The average (July-December 2024: 3.4 percent), primarily driven by lending rate on outstanding loans declined slightly housing and vehicle loans.38 Business loans registered to 5.0 percent as of the end of June 2025 (December a lower growth of 1.4 percent (July-December 2024: 2024: 5.1 percent). Similarly, the 12-month fixed deposit 3.1 percent), moderated by a slower growth in SME rate fell slightly by five basis points to 2.48 percent as financing of 1.9 percent, relative to the 3.7 percent of the end of June 2025 (December 2024: 2.5 percent), FIGURE 40 Weighted average fixed deposit and lending rates declined relative to 2024 following Malaysia’s first OPR cut in five years Fixed deposit and lending rates, Percentage 6 5 Weighted average lending rate, 4.8 4 3M KLIBOR, 3.2 3 Overnight Policy Rate (OPR), 2.8 Weighted average 12M xed deposit rate, 2.2 2 Q3-2022 Q4-2022 Q1-2023 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q2-2025 07/2025 Source: World Bank staff calculations based on BNM data. 36 Refers to loans by the banking system and development financial institutions (DFIs). 37 Refers to growth within a 6-month period between end-December 2024 to end-June 2025. 38 Housing and vehicle financing account for more than 77 percent of outstanding household loans in the banking sector, which grew by 3.6 percent and 2.9 percent, respectively, during the period January to June 2025. 39 Source: BNM Financial Stability Review H2 2024. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 41 PART ONE - Recent Economic Developments and Outlook continuing the slight downward trend observed since raising activity in debt markets was comparable to the mid-2023 (Figure 25). 39 The 3-month Kuala Lumpur amount raised through corporate bonds and sukuk in Interbank Offered Rate (3M KLIBOR) dropped to 3.5 the second half of 2024. percent as of end June 2025 (December 2024: 3.7 percent) amid expectations of a cut in the OPR. The R etur ns from M alaysian eq uity mar kets average lending rate, 12-month fixed deposit rate and underperformed global peers in the first half of 3M KLIBOR subsequently fell further to 4.8 percent, 2.2 2025, while Malaysian bond yields decreased percent and 3.2 percent respectively in July 2025 upon in line with global fixed income markets. The the announcement of a 25 basis-point cut in the OPR to benchmark FBMKLCI declined 6.7 percent, compared 2.75 percent. to the 3.3 percent gain from June to December 2024, underperforming global equity markets in H1 2025 The impaired loans ratios remained relatively low (MSCI World Index: 8.6 percent gain; MSCI Emerging throughout the first half of 2025, and banking Markets Index: 13.7 percent gain). The FBMKLCI institutions continued to maintain adequate experienced significant volatility since April, following capital and liquidity buffers. The gross impaired the announcement of proposed import tariff measures loans ratio stood at 1.4 percent as of the end of June by the U.S., the escalation in the Middle East conflict, 2025 (December 2024: 1.4 percent), a five-year low and and from the domestic front; uncertainty over the lower than most regional peers.40 The total capital ratio introduction of the expanded sales and service tax (TCR) and Tier 1 capital ratio stood at 17.8 percent and and a new electricity tariff framework effective 1 July.42 14.8 percent, respectively, as of June 2025, both well In bond markets, yields on 10-year MGS decreased above the regulatory minimum ratios. The LCR also 35 basis points as of the end of 2025 to 3.4 percent, remained well above the regulatory minimum at 160.6 while yields on AAA-rated Malaysian corporate bonds percent in the same period. similarly declined (decreased 23 basis points to 3.8 percent).43 Lower Malaysian bond yields coincided with Corporate fundraising through domestic capital lower OPR and US Treasury yields and lower domestic markets remained robust ( Table 1) . Equit y inflationary pressure. fundraising remained forthcoming, with IPOs on the local bourse outpacing ASEAN peers in an array of Malaysian capital markets attracted foreign metrics, including the number of IPOs, total IPO market net inflows of USD 2.3 billion in the first half of capitalization and total IPO funds raised.41 The market 2025, more than 10 times larger than the net registered 32 IPOs, which raised a total of RM4.0 billion inflows in the whole 12-month period of 2024 in the first half of 2025, with listings driven mainly from (Figure 41 and 42). Net inflows into Malaysian bonds the ACE Market. However, there was a moderation in and sukuk increased to USD 5 billion in the first half secondary issuances in the first half of 2025 compared of 2025, amid expectations for future OPR cuts and to the second half of 2024. Meanwhile, corporate bond investor preference for emerging market fixed TABLE 1 Capital raising activity in the Malaysian capital markets remained robust Bond and Sukuk Fundraising (RM billion) Equity Fundraising (RM billion) Period Government Corporate IPO Secondary Issuances 2021 263.1 114.3 2.8 14.3 2022 281.8 153.3 3.5 22.6 2023 429.2 118.3 3.6 5.8 2024 313.6 124.2 7.4 7.3 H1 2024 199.5 52.1 2.2 4.2 H2 2024 113.7 72.0 5.2 3.1 H1 2025 125.4 61.1 4.0 1.6 Source: SC and Bursa Malaysia. 40 According to the latest figures from respective national sources: Singapore (1.2 percent), Thailand (2.9 percent), Indonesia (2.2 percent) and the Philippines (3.3 percent) as of June 2025. 41 The number of IPO listings within the region was as follows: Indonesia (14), Thailand (5), Singapore (1) and the Philippines (1). 42 Source: CIMB Research June 2025. 43 Source: Bloomberg data. 42 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook income instruments.44 This helped offset net outflows To date, the ringgit strengthened by 5.4 percent from the Malaysian equity market totaling USD 2.7 against the United States Dollar (USD) (Figure 43). billion. Similar patterns of net foreign equity outflows The appreciation of the ringgit was in line with other and net foreign bond inflows were observed across regional currencies in the region (Figure 44). Much comparable ASEAN countries, though collectively, net of this appreciation occurred from April onwards, foreign portfolio inflows into Malaysia’s capital markets partly driven by the broad weakening of the USD were higher than peers. Foreign holdings of overall amid growing uncertainties surrounding U.S. trade Malaysian bonds and sukuk rose to 13.6 percent as of policies. In addition to external factors, the ringgit’s the end of June 2025 (December 2024: 13.1 percent), performance was also supported by foreign inflows while foreign equity ownership in Malaysia, which has into Malaysia’s domestic bond market. Meanwhile been trending downwards since 2018, declined to an the nominal effective exchange rate (NEER) also all-time low at 19.0 percent as of the end of June 2025 strengthened modestly, appreciating by 1.0 percent as (December 2024: 19.7 percent).45 of July 2025. FIGURE 41 FIGURE 42 Portfolio inflows into Malaysia’s bond market Fund flow trends in selected ASEAN countries helped offset net outflows from equities were mixed Non-resident portfolio net ows into Malaysia, RM billion Non-resident portfolio ows in H1 2025, US$ billion 33.6 5.0 30.5 23.7 21.4 21.4 9.0 18.3 2.5 2.3 1.5 4.8 3.9 4.4 0.6 0.6 0.5 0.9 0.1 -0.8 -0.1 -3.1 -2.3 -3.3 -0.6 -4.2 -0.7 -6.3 -0.9 -5.4 -9.8 -12.4 -2.3 -2.7 -3.2 -24.6 2020 2021 2022 2023 2024 H1 H2 H1 Malaysia Philippines Indonesia Thailand 2024 2024 2025 Equity Market Bond Market Net Flow Equity Market Bond Market Net Flow Source: World Bank staff calculations based on Bloomberg and SC data. Source: World Bank staff calculations based on Bloomberg data. FIGURE 43 FIGURE 44 The ringgit strengthened amidst higher Year-to-date the appreciation of the ringgit was in uncertainties on U.S. trade policies and growth line with other regional currencies USD/MYR exchange rate, YTD change, Percentage Regional currencies against the USD, YTD change, Percentage 8 April 2, 2025 Liberation Day HKD tariff announcement 7 CNY 6 5 SGD 4 IDR 3 KRW 2 PHP 1 0 THB -1 MYR 03/01/2025 03/02/2025 03/03/2025 03/04/2025 03/05/2025 03/06/2025 03/07/2025 03/08/2025 03/09/2025 -15 -10 -5 0 5 10 15 2024 Year-to-date Source: World Bank staff calculations based on BNM data. Source: World Bank staff calculations based on BNM data. Note: Data as of September 10, 2025 44 Source: Reuters. See https://www.reuters.com/world/asia-pacific/malaysia-scores-record-flows-bond-investors-favour-asia-2025-06-18/ 45 Data source for non-resident holdings of Malaysian bonds and sukuk from BNM and BIX; foreign equity ownership data from Bursa Malaysia. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 43 PART ONE - Recent Economic Developments and Outlook Fiscal consolidation is accompanied by cuts to development spending amid declining revenue In 2024, the government revised its revenue trade policies in 2025 is weighing on domestic growth upwards to accommodate for higher OE, while prospects, with potential implications for lower-than- scaling back DE, resulting in a narrower fiscal anticipated collections from CIT, personal income tax deficit at 4.1 percent of GDP relative to its (PIT), and SST. Additionally, Brent crude oil prices have target. 46 The total revenue was revised up by 1.2 been averaging below the budget assumption, posing percentage point of GDP to 16.8 percent of GDP (2023: risks of shortfalls in oil-related revenue.52 17.3 percent of GDP), driven mainly by higher non- tax revenue 47 and the Sales and Service Tax (SST) 48, The fiscal deficit target of 3.8 percent of GDP in although this was partially offset by lower corporate 2025 is underpinned by expenditure cuts, though income tax (CIT) collections (Figure 45). Total OE was upward risks to OE remain. Fiscal consolidation in revised upwards by 1.3 percentage points of GDP to 2025 is projected to be achieved through a reduction in 16.6 percent of GDP (2023: 17.1 percent), compared total federal government expenditure to 20.2 percent to the budgeted amount. The additional expenditure of GDP in 2025 (2024: 21.0 percent) (Figure 46). OE is was mainly for the RON95 subsidy, as well as higher forecasted to decline to 16.1 percent of GDP in 2025 emoluments and retirement charges due to the (2024: 16.6 percent), largely due to reduced allocations implementation of the Public Service Remuneration for subsidies and social assistance at 2.5 percent of System (SSPA).49 Meanwhile, gross DE was marginally GDP (2024: 3.5 percent), following planned fuel and revised down by 0.2 percentage points to 4.4 percent electricity subsidy rationalization programs. Despite of GDP (RM84 billion), below the government’s annual the projected decline, subsidies and social assistance DE commitment of at least RM90 billion annually as spending is subject to upward risks from delays and outlined in the mid-term review of the 12MP. revisions to policy measures.53 Meanwhile, gross DE is projected to continue declining to 4.1 percent of GDP Overall revenue is projected to decline in 2025, with in 2025. The allocated amount of RM86 billion for 2025 downside risks from weaker growth and oil-related brings the total DE through 2021-2025 to RM401.9 revenue shortfalls, though additional collection is billion, slightly below the RM415 billion earmarked for anticipated from the expanded SST. 50 In Budget development spending under the 12MP (2021–2025). 2025, government revenue is projected to continue Under the 13MP (2026–2030), RM430 billion—or an declining to 16.3 percent of GDP in 2025, primarily average of RM86 billion per year—has been allocated due to lower non-revenue receipts (2025: 0.4 percent for DE. This represents approximately 3.3 percent—3.4 of GDP; 2024: 0.7 percent). Tax revenue is forecasted percent of GDP on average annually54, lower than the to remain at 12.4 percent of GDP. The government 4.4 percent average under 12MP. While reductions anticipates that the SST expansion implemented in DE contribute to fiscal consolidation, effective in July 2025 will raise an additional RM5 billion management requires balancing budget discipline with (0.23 percent of GDP) above the budget baseline.51 preserving growth-enhancing investments to sustain However, heightened uncertainty surrounding global the 13MP’s long-term growth trajectory. 46 The fiscal deficit target was 4.3 percent of GDP in Budget 2024. 47 The higher-than-budgeted non-tax revenue is primarily derived from: (1) proceeds from asset recovery measures (RM2.3 billion), (2) funds from unclaimed monies following amendments to the Unclaimed Monies Act 1965 (RM1.6 billion), (3) increased contributions from the Retirement Fund (Incorporated) (KWAP) (RM2 billion), and (4) higher petroleum royalties (RM1 billion). 48 This increase reflects a higher service tax rate, raised from 6 to 8 percent, and an expanded scope of taxable services effective 1 March 2024. 49 The SSPA includes revisions to the services scheme, basic wage, allowances, benefits, and pensions, along with a one-off payment of RM2,000 to all civil servants in Grades 56 and below , and RM1,000 to all government pensioners, including veterans. 50 SST expansion implemented on 1st July 2025 broadens the tax base by including a wider range of discretionary goods and selected services, with higher rates applied to luxury items. 51 Ministry of Finance Press Citations, June 2025. 52 The budget assumption was USD 70-75 price per barrel, while Brent oil price averaged at USD71.7 per barrel in H1 2025 (Source: World Bank commodity markets data). 53 This includes delays in the rollout of the targeted RON95 subsidy from mid-2025 to end-2025, and downward revisions to the fuel price cap from RM2.05 to RM1.99, although softer oil prices may help cushion the impact. In addition, the broad-based RM100 transfer announced in July adds RM2 billion (0.1 percent of GDP) to the existing social assistance allocation. 54 Based on the assumed real GDP growth rate of 4.5 to 5.5 percent under the 13 MP, and an average inflation rate of 2 percent. 44 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook FIGURE 45 FIGURE 46 In 2024, federal government revenue and OE Fiscal consolidation in 2025 is projected to be were revised upwards while DE was scaled back driven by expenditure cuts Change in federal government revenue and expenditure Change in components of the federal government nance between 2024 budget and actual gures, Percentage of GDP compared to the prior year, Percentage of GDP 2.0 3 Positive changes in scal balance indicate smaller de cits 1.5 SST 2 Interest and returns Debt service charges on investment 1 1.0 Retirement charges Emoluments 0 Other non- 0.5 tax revenue Subsidies and social assistance Transport -1 0 PIT Other OE -2 CIT Other DE -0.5 -3 2022 2023 2024 2025f -1.0 Revenue Operating Development Change in Revenue Change in OE Expenditure Expenditure Change in Net DE Covid-19 fund Overall change Change in overall scal balance Source: World Bank staff calculations based on MOF data. Source: World Bank staff calculations based on MOF data. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 45 PART ONE - Recent Economic Developments and Outlook More broadly, declines in petroleum-related revenue revenue contributing 4.1 points of the fall, although have driven Malaysia’s revenue-to-GDP ratio to partly offset by a 0.7 percentage point increase from fall despite SST gains in recent years, marking SST. Against this backdrop, diversifying channels one of the steepest global drops since 2012. to strengthen revenue collection and resilience Malaysia’s general government revenue-to-GDP ratio has become increasingly important. In this regard, has declined steadily since peaking at 25.4 percent GovTech strategies—such as the Tax Management in 2012 (Figure 47). The drop was driven mainly by Information System (TMIS) and other Government-to- petroleum-related income following the 2014–16 oil Government (G2G) services—are highly relevant for price slump, alongside broad-based declines in direct improving compliance, broadening the tax base, and taxes and state and local revenues. Between 2012 and ultimately reinforcing revenue performance (see Part 2 2025, revenue fell by 5.9 percentage points — one of From Bytes to Benefits). the steepest global declines—with petroleum-related FIGURE 47 FIGURE 48 Government revenue has been on a downward ...mainly driven by significant declines in trend since 2012... petroleum-related revenue General government revenue, Percentage of GDP Change in general government revenue between 2012 and 2025, Percentage of GDP 30 2 25 1 Corporate Corporate -0.7 0 PIT PIT 20 -1 Petroleum Petroleum related -2 revenue related 15 revenue -3 GST/SST GST/SST -4 -4.1 Non-tax revenue 10 Non-tax revenue -5 Others 5 Others -6 State and Local -7 -5.9 Governments State and Local 0 Governments -8 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024e 2025f 2012-2025 Source: World Bank staff calculations based on MOF data. Source: World Bank staff calculations based on MOF data. FIGURE 49 Malaysia’s revenue decline between 2012 and 2025 is one of the steepest recorded globally Change in general government revenue as a percentage of GDP, Percentage points 8 6 4 2 0 -2 -4 -6 -8 -10 Ireland Malaysia Denmark Laos Hungary Turkey Indonesia China Peru Belgium Iceland Sweden Colombia Myanmar Netherlands France Slovenia Argentina Thailand Italy Czechia Georgia Romania New Zealand Finland Switzerland Cambodia Greece Portugal Mexico Germany Costa Rica Latvia Brazil U.S. Korea, Rep. Singapore Austria Uruguay Philippines Estonia Australia Serbia Canada Poland Spain Croatia Norway Lithuania Japan Slovakia U.K. Source: World Bank staff calculations based on IMF Government Finance Statistics. 46 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook Debt pressures remain, underscoring the need for enhanced consolidation efforts to meet FRA targets With debt levels elevated and interest costs for productive spending at a time when government rising, greater consolidation efforts will be crucial. revenue is declining and spending pressures are Malaysia’s government debt-to-GDP ratio rose to increasing. While the government has successfully 64.6 percent in 2024 (2023: 64.3 percent), exceeding achieved its annual fiscal deficit targets since 2022, budget estimates55 and the FRA’s medium-term target further consolidation may be needed to moderate of 60 percent. It is projected at 64 percent for 2025. debt accumulation in line with FRA commitments. The debt service ratio56 is projected to rise to 16.1 World Bank staff estimates suggest achieving a percent in 2025 (2024: 15.6 percent) above the prudent primary balance of 1 percent of GDP within the next administrative threshold of 15 percent (Figure 50). This three years would be necessary to meet the FRA’s debt reflects debt service charges (DSC) growing faster than target. Malaysia has not recorded a fiscal surplus since revenue. Moreover, Malaysia’s DSC, as a share of both 1998, underscoring the significant consolidation efforts revenue and GDP, remain higher compared to regional required by the FRA (see Box 4: Strengthening the and aspirational peers57 (Figure 51). This could further FRA). constrain Malaysia’s fiscal flexibility, limiting resources FIGURE 50 FIGURE 51 The DSR is projected to be on a rising trend Malaysia’s debt service burden remains higher through 2025 than that of regional and aspirational peers Debt service charges, Percentage of total federal government Debt service charges, Debt service charges, revenue and GDP Percentage of total revenue Percentage of GDP 2.7 17 20 3 16 2.5 15 15 2 2.3 14 13 10 2.1 12 1 5 1.9 11 10 1.7 0 0 9 Indonesia Malaysia Philippines Regional peers Thailand Aspirational peers Singapore 1.5 8 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024e 2025f Debt service to GDP (LHS) Share of GDP (RHS) Debt service to revenue (RHS) Share of revenue (LHS) Source: World Bank staff calculations based on MOF data. Source: World Bank database. 55 In Budget 2025, debt-to-GDP ratio was estimated at around 64 percent for 2024. 56 The DSR is the debt service charges as a share of total federal government revenue. 57 Refer to World Bank Group (2021), “Aiming High: Navigating the Next Stage of Malaysia’s Development ” for list of regional and aspirational peers. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 47 PART ONE - Recent Economic Developments and Outlook BOX 4 Strengthening the FRA Malaysia’s FRA is a landmark step toward strengthening fiscal discipline. 58 International experience and empirical work suggest that successful fiscal rule frameworks balance simplicity, well-calibrated flexibility, and enforceability to build credibility.59 In practice, outcomes hinge more on credible implementation and enforcement than solely on legal design. Fiscal rules deliver results only when institutions ensure consistent, transparent compliance and corrective action, which builds credibility over time. If credible, the FRA could deliver benefits well beyond fiscal discipline. Besides the disciplinary effect of fiscal rules by design, credible and enforceable rules can yield broader macroeconomic benefits. By anchoring expectations about future debt levels and fiscal deficits, the FRA could reduce sovereign risk premiums, lower borrowing costs, and strengthen investor confidence, thereby crowding in private investment and supporting long- term growth.60 In this way, the FRA would not only safeguard fiscal sustainability but also act as a catalyst for private capital to flow toward more productive uses, reinforcing Malaysia’s long-term growth prospects. Malaysia’s FRA is a significant step toward stronger discipline, but its macroeconomic impact will hinge on how it is operationalized. The suggested improvements below aim to clarify existing rules and reinforce the framework’s design to enhance operationalization and enforcement. 1. Greater clarity on the compliance horizon for the numerical rules61 would enhance predictability. For example, the Act sets a medium-term window of three to five years for attaining the federal government debt ceiling of 60 percent of GDP or below. By end-2026, the framework will have been in place for about three years, yet federal government debt remains above the ceiling as of 2025. Compliance periods also differ across See the box “Understanding the Public Finance and Fiscal Responsibility Act” in the April 2024 Malaysia Economic Monitor for an overview of the 58 Act’s main features. 59 Source: Eyraud, Debrun, Hodge, Lledó, & Pattillo, 2018. 60 Source: Esquivel and Samano, 2025. The numerical rules are: Annual development expenditure ≥ 3 percent of GDP, Fiscal balance ≤ -3 percent of GDP, Debt level ≤ 60 of GDP, financial 61 guarantee ≤ 25 percent of GDP. 48 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook rules: development expenditure and financial guarantees are assessed annually, while the fiscal balance and debt rules are assessed over the medium term. Given the interaction among rules and the annual budget cycle, requiring annual compliance for all numerical rules would strengthen the predictability and transparency of the framework. 2. Technical refinements to the rules on debt and guarantees could help instill greater fiscal prudence. Consolidating the debt and financial guarantees rules into a single ceiling could reduce incentives to channel investment through off-budget mechanisms such as PPPs. In addition, the current debt ceiling of 60 percent of GDP exceeds peer benchmarks (EMDEs average: 45 percent). With a separate limit of 25 percent of GDP on financial guarantees, the implied combined space for debt and guarantees is roughly 85 percent of GDP, which appears excessive. The authorities could consider replacing the current dual limits with a single ceiling on debt and financial guarantees, more closely aligned with peer benchmarks. 3. The authorities could consider codifying predictable, automatic escape clauses and correction mechanisms to enhance predictability in cases of noncompliance. A resilient and credible rules-based framework combines flexibility with simplicity and transparency, with clear provisions for noncompliance and for sudden unpredictable shocks that affect the economy and the fiscal position. Well-specified escape clauses should define the trigger events, the allowed temporary deviation from targets, the duration of any suspension, and the path back to the rule. Likewise, automatic correction mechanisms should set the deviation threshold that triggers adjustment, identify the aggregates to be adjusted, and require a time-bound return to compliance. Empirical evidence shows that countries that suspend deficit rules take, on average, about three years to return to compliance.62 This underscores the need for the FRA to include predictable and automatic adjustment mechanisms, both within escape clauses and through correction rules, to guide a gradual and credible return to compliance without relying on political discretion. Under the current Act, escape clauses and provisions for temporary deviation exist, but their parameters could be clarified and specified more precisely.63 4. On the institutional side, the framework could be strengthened by establishing an independent fiscal council. While the FRA mandates a Fiscal Policy Committee 64 to advise the cabinet, its composition of committee members may constrain independence. International practice features independent oversight institutions, as in Korea and Australia. The experience of Chile and Peru demonstrates how such independent institutions can be effective in emerging economies: Chile’s Fiscal Council has played a central role in ensuring compliance with the country’s structural balance rule, while Peru’s Fiscal Council has strengthened transparency by publicly assessing fiscal assumptions and highlighting risks. Both cases show that independent fiscal councils can reinforce credibility and market confidence even in contexts of limited institutional capacity, offering a useful model for Malaysia. An independent council, supported by a permanent technical secretariat that (i) monitors compliance with fiscal rules, (ii) prepares independent macroeconomic projections, and (iii) assesses the fiscal impact of government initiatives, would enhance transparency and credibility. 5. The authorities could provide greater clarity on the timeline for publishing the Fiscal Risk Statement and the Tax Expenditure Statement. At its core, the Act reduces the Minister’s discretionary authority and elevates the role of Parliament.65 Disclosure of fiscal risk statements would have made the materialization of contingent liabilities, such as the 1MDB liabilities, less likely under the FRA, or at the very least, would have brought them to light much earlier. A tax expenditure statement would also quantify the opportunity cost of incentives, which is especially important given low federal government tax-revenue collection. At present, it remains unclear when these two statements will be published. 62 Source: Islamaj, Samano, and Sommers, 2024. 63 Fiscal adjustment plan due to non-compliance with the fiscal rules requires parliamentary approval, while a temporary deviation from the fiscal rules due to a sudden and unforeseeable event requires cabinet approval, which is subsequently presented to parliament. 64 FPC members consist of the Prime Minister as chairman, the Deputy Prime Minister, the ministers charged with finance and economy, the Chief Secretary to the Government, the secretary generals of the Treasury and the Ministry of Economy, the Central Bank Governor, and not more than two external fiscal experts appointed by the committee. 65 Source: Radhi, 2025. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 49 50 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook Economic Outlook Global and regional growth is expected to moderate in 2025, mainly reflecting weaker global trade Global growth is projected to slow to 2.4 percent higher fiscal spending. in 2025 (2024: 2.8 percent), amid easing but still elevated policy uncertainty. The upward revision Growth in the EAP region is projected to moderate of 0.1 percentage point since the previous forecast66 to 4.5 percent in 2025 (2024: 5.0 percent), before reflects more robust-than-expected front-loading easing further to 4.0 percent in 2026. The slowdown of activity, lower effective U.S. tariff rates, and fiscal is driven primarily by weaker growth prospects in China, expansion in major economies. Nonetheless, growth is reflecting the impact of tariffs, a soft labor market, and expected to weaken toward the year-end with slowing a subdued property sector weighing on consumption, global trade, as the impact of tariffs weighs more partly offset by fiscal stimulus. Excluding China, growth heavily on economic activities and firms increasingly in the region is expected to slow to 4.2 percent in 2025 pass on higher costs. This would mark the slowest pace (2024: 4.9 percent), largely due to rising trade tensions. of global expansion since 2008, excluding periods of Heightened policy uncertainty, weaker sentiments, and outright recession. For 2026, a slight recovery in global spillovers from softer external demand are expected to growth is projected at 2.5 percent. While the effects of weigh on exports and private investment in the region. front-loading are expected to unwind, these will likely In 2026, growth in EAP excluding China is projected to be offset by other developments, including higher edge up slightly, as fiscal and monetary policy support growth in advanced economies supported mainly by is expected to offset the drag from tariffs impact. Malaysian growth is projected to moderate in 2025, though it is higher than initially expected The Malaysian economy is projected to grow by 4.1 FIGURE 52 percent in 2025 (2024: 5.1 percent) (Figure 52). Malaysia’s growth is projected to moderate This marks an upward revision of 0.2 percentage point through 2026 from the April 2025 forecast, underpinned by stronger- Real GDP, y/y, Percentage than-expected private investment and continued 10 export growth in the first half of 2025, alongside 8.9 8 additional fiscal and monetary policy support. Private 6 5.1 consumption is projected to grow by 5.0 percent 4.4 4.1 4.1 4 3.3 3.6 this year (2024: 5.1 percent), supported by further 2 improvement in labor market conditions and continued 0 real wage growth, the implementation of several policy -2 measures such as the upward revision of the minimum -4 wage and implementation of the progressive wage -6 -5.5 model, as well as continued government household -8 income support, including the additional universal 2019 2020 2021 2022 2023 2024 2025f 2026f cash transfer. Meanwhile, public consumption is projected to grow at 4.0 percent this year (2024: 4.7 Source: World Bank staff projections based on DOSM data. 66 June 2025 Global Economic Prospects. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 51 PART ONE - Recent Economic Developments and Outlook percent) partly supported by increased emoluments continued demand for electrical and electronics (E&E), and pensions resulting from the implementation of civil underpinned by investments-related to AI, is likely to servant salary increases. provide some support. GFCF growth is expected to moderate in 2025 Headline inflation is projected to remain low at although at a pace higher than projected in 1.6 percent in 2025 (2024: 1.8 percent) amid April 2025. Private investment will continue to be moderate cost conditions. Recently announced supported by ongoing multi-year investments and the domestic policy measures, including SST expansion, realization of approved investments. However, policy minimum wage revision, progressive wage model, uncertainty and weak business sentiments is likely to the RON95 subsidy rationalization and civil servant weigh on investment decisions. Capital spending by salary revision are anticipated to increase prices, but the government will be primarily directed towards the increases are expected to be contained. However, upgrading public infrastructure in the transportation, the overall impact is expected to remain contained, health, and education sec tors, as well as the supported by moderate global cost conditions and implementation of catalytic initiatives under national lower commodity prices. Upside risks to the inflation master plans and the 13MP. Investment from public outlook stem from stronger-than-anticipated spillovers corporations will be bolstered by ongoing strategic of domestic reforms, as well as inflationary effects from infrastructure projects and the GEAR-uP initiative. substantial trade policy shifts and conflict-related trade shocks. Downside risks include weaker global growth Malaysia’s export activity will face considerable and commodity prices, and more limited spillovers external headwinds arising from adverse trade from domestic reforms. policy shifts. Although the conclusion of most trade negotiations has reduced risks from global policy Growth of the Malaysian economy is expected uncertainty, export momentum is likely to weaken to continue moderating in 2026 (4.1 percent), as toward the end of 2025 as front-loading effects external headwinds likely to persist. While global dissipate, and as firms begin passing on higher tariff- demand is projected to improve slightly, regional related costs. Weaker sentiment, a stronger exchange growth is anticipated to slow, particularly with the rate, and lower commodity output are also expected to continued deceleration of the Chinese economy. Export weigh on export growth. However, tourism activity and growth for Malaysia is likely to be subdued as front- TABLE 2 Malaysia’s GDP growth is expected moderate in 2025 Real GDP Growth, y/y, Contribution to Real GDP Growth, y/y, Percentage Percentage Point 2023 2024 2025f 2026f 2023 2024 2025f 2026f GDP 3.5 5.1 4.1 4.1   Domestic Demand Domestic Demand 5.0 4.9 5.2 4.7 4.7 4.7 5.0 4.5 (including stocks) (including stocks) Private Consumption 4.6 5.1 5.0 4.9 Private Consumption 2.8 3.1 3.0 3.0 Public Consumption 3.4 4.7 4.0 3.6 Public Consumption 0.5 0.6 0.5 0.5 Gross Fixed Capital Gross Fixed Capital 5.4 12.0 7.2 4.7 1.1 2.4 1.5 1.0 Formation Formation External Demand External Demand Exports of Goods & Exports of Goods & -7.9 8.3 2.9 2.9 -5.9 5.5 2.0 2.0 Services Services Imports of Goods & Imports of Goods & -6.8 8.2 4.5 3.7 -4.7 5.1 2.9 2.4 Services Services Source: World Bank staff calculations and projections based on DOSM data. 52 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART ONE - Recent Economic Developments and Outlook loading effects unwind with the impact of prospective government measures such as the second phase of the tariff measures on the semiconductor sector remains civil service salary increase in January 2026. GFCF is uncertain. Domestic demand is expected to remain projected to moderate amid weaker sentiment, though the main driver of growth. Private consumption will it will continue to be supported by the realization of be supported by continued wage growth, alongside approved projects. The balance of risks to growth is tilted to the downside Growth is subject to significant risks, with the Elevated uncertainty and weaker business sentiment balance of risks tilting towards the downside over could result in delays or scaling back of planned the foreseeable future. Externally, further increases investments as with firms adopting a more cautious in trade barriers, persistent policy uncer tainty, approach to both capital and OEs. On the supply side, and  potential downside shocks in major economies unfavorable weather conditions and prolonged field could fur ther weaken global growth, trade and maintenance may result in disruptions to commodity investment, with significant implications for Malaysia production. On the upside, growth could benefit given its deep trade and financial linkages. Commodity from more favorable outcomes in the remaining prices could also fall below baseline projections, trade negotiations, additional policy support in major weighing on Malaysia’s terms of trade and potentially economies and higher commodity prices. Domestically, prompting fiscal tightening as commodity-linked upside risks stem from stronger-than-expected revenues decline.  Domes tic ally, larger-t han - household spending and tourism activity, as well as expected inflationary pressures from further subsidy faster implementation of ongoing investment projects. rationalization could dampen household consumption. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 53 54 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 55 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Across the globe, governments are embracing among the region’s most ambitious digital reformers GovTech67—the strategic use of digital technologies and highlights the urgency of ensuring that institutional in public administration—to modernize institutions, and regulatory reforms keep pace with digital solutions. enhance service delivery, and unlock productivity gains. This shift reflects a growing recognition that However, financial investment alone is not a digital transformation is not only about deploying guarantee of success and may fuel disillusionment new technology, but also about aligning institutional if the high expectations of “digital dividends” are structures, processes, and skills to deliver better not met.69 As highlighted in the World Development outcomes for citizens and businesses. Countries that Report (2016), digital technologies are spreading combine strong digital infrastructure with effective rapidly, but the broader benefits of faster growth, more “analogue complements”—such as leadership, cross- jobs, and better services are not always materializing.70 agency coordination, robust data governance, and The experience of many countries shows that digital a digitally skilled workforce—are better positioned investments deliver real improvements only when to translate GovTech investments into measurable paired with strong institutions, capable public servants, improvements. and coherent national systems. Building on these global lessons, Part 2 of the report adopts a three- Malaysia has made notable strides in building layer conceptual framework (Figure 53) to understand the foundations of a high-performing digital how digital transformation can enhance public sector gover nment . Guided by the Public Sec tor productivity: Digitalization Strategic Plan (PSDSP) 2021-2025 and the 12th MP, the country has invested in core platforms, • Foundations refer to the underlying digital strengthened policy and legal frameworks, and infrastruc ture required to suppor t digital expanded the availability of e-services. The recently gover nme nt, including s ec ure net wor k s, launched 13 th MP reinforces digital transformation interoperable systems, and platforms that enable as a central driver of public sector productivity and data sharing and service delivery. socio-economic development.68 It emphasizes whole- of-government coordination, secure and efficient data • Enablers are the institutional and organizational sharing, and workforce digital readiness as critical capacities that activate and sustain digital levers for improving service delivery that is faster, more transformation, such as effective public institutions, integrated, and more citizen-centric. This commitment sound regulatory frameworks, mechanisms for aligns with Malaysia’s broader vision of becoming a public sector data sharing, and a digitally skilled digitally driven, high-income economy underpinned by workforce. an agile, innovation-ready public sector. • User-centric service delivery focuses on the Malaysia is committing unprecedented resources to outcomes that matter most—services that are digitalization and AI. In 2024 alone, federal allocations accessible, responsive, and integrated across for ICT-related capital expenditure amounted to RM3.6 government. This layer reflects the ultimate billion, with approved project values exceeding RM15 goal of GovTech investments: delivering better billion, and expenditures in 2025 are expected to be experiences and results for citizens, businesses, even higher. This scale of investment places Malaysia and public servants themselves. 67 “GovTech” is defined as a whole-of-government approach to public sector modernization, focusing on three aspects: citizen-centric services, universal accessibility, and digital transformation. It aims to enhance Core Government Systems, which are essential for managing public administration, increasing revenues, identifying inefficient spending, and optimizing resource allocation. 68 https://rmk13.ekonomi.gov.my/ 69 https://www.businesstoday.com.my/2025/08/18/anwar-warns-of-ai-productivity-paradox-in-digital-push/ 70 World Bank World Development Report 2016: Digital Dividends 56 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 53 Conceptual framework for public sector productivity OUTPUTS User-centric Service Delivery ENABLERS Digital Technology Institutions Data Sharing Digital Skills OUTPUTS PUBLIC SECTOR INPUTS PRODUCTIVITY FOUNDATIONS Digital Government Infrastructure INPUTS Human Resources Financial Resources Source: World Bank GovTech Flagship Report for Malaysia (forthcoming), building upon the World Bank’s Digital Global Challenge Program Framework and the World Bank Bureaucracy Lab’s framework on the productivity of public servants.71 Together, these layers help the public sector indicator that digital transformation has fulfilled its translate inputs—such as human and financial promise, driving lasting gains for society as a whole. resources—into improved outputs and outcomes, enabling services to be delivered more efficiently, This part of the report draws on both global equitably, and at scale. Digital technology is a benchmarks and country-specific data to provide transformative force, reshaping how governments a comprehensive assessment of Malaysia’s allocate resources, make decisions, and share public sector digital transformation. The World information. Yet, the true value of digital investments Bank’s GovTech Maturity Index (GTMI 2022)72 offers is realized only when they are anchored in robust a comparative perspective on Malaysia’s digital systems that foster accountability, interoperability, government capabilities, benchmarking progress and institutional capacity. By strengthening these across areas such as digital infrastructure, service foundational enablers, governments can unlock the full delivery, and institutional frameworks. Complementing potential of digital solutions—translating innovation this, the GovTech Skills Survey of Malaysian Public into sustained improvements in service delivery, Servants (2025)—conducted in partnership with the operational efficiency, and public trust. Public Service Department (PSD)—captures insights from over 16,500 civil servants across 28 ministries At the heart of this transformation lies public on digital skills, leadership, collaboration, and service sector productivity. It ser ves as the ultimate delivery practices. Where available, these sources are benchmark, revealing whether digital foundations further enriched by official statistics and administrative are resilient, enablers are effective, and services are data, such as budgetar y allocations and human genuinely designed around user needs. When digital resource records, ensuring that findings are grounded transformation is guided by a focus on productivity, in both self-reported and objective evidence. This it delivers measurable dividends for citizens: more combined approach enables the report to benchmark responsive ser vices, streamlined processes, and Malaysia’s progress against neighboring countries greater transparency—which in turn leads to private and aspirational peers, identify reform priorities, and sector growth and better jobs. In this way, public sector provide actionable recommendations for the 13th MP’s productivity is not just an outcome—it is the strongest implementation. 71 http://documents.worldbank.org/curated/en/099302410042414534; https://openknowledge.worldbank.org/entities/publication/de517bf4-ef64- 5214-aa7c-4d323eb3a967 72 The GTMI is a global benchmarking tool that assesses how effectively governments use technology to enhance public sector performance, focusing on digital infrastructure, service delivery, and citizen engagement. For more information, see: https://www.worldbank.org/en/programs/govtech/ gtmi. The World Bank is in the process of completing data collection for the 2025 dataset covering 192 economies, which will be released in December 2025. For the purposes of this report, the 2022 data point has been used. However, the team has made efforts to verify the latest developments and ensure that Malaysia’s underlying information for the GovTech Maturity Index (GMTI) is up to date. The forthcoming World Bank GovTech Flagship Report for Malaysia will reflect the 2025 dataset. As noted in the RK13, Malaysia remained in category A in the GovTech Maturity Index in 2022, reflecting success of digitalization efforts in public service delivery. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 57 58 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Malaysia’s strong digital foundations position it as a regional leader in building a future- ready government Digital infrastructure is the critical backbone of average. This progress, particularly notable in the any modern government, underpinning the delivery post-COVID-19 recovery period, signals the country’s of agile, secure, and citizen-centric public services. determination to create an efficient, secure, and As governments increasingly rely on data, technology, inclusive digital ecosystem for public service delivery. and cross-agency collaboration to meet evolving Malaysia has also achieved the highest scores on demands, robust digital foundations become essential. the World Bank’s GTMI in key areas such as cloud Core components — such as cloud computing, platforms, the Government Service Bus (GSB), and the secure networks, digital collaboration platforms, adoption of disruptive technologies—putting itself and cybersecurity frameworks, enable not only the ahead of its regional peers as well as OECD countries efficient delivery of services but also the resilience to (Figure 54). withstand disruptions and the interoperability needed for whole-of-government approaches. Without these One of Malaysia’s standout achievements lies in its foundational enablers, digital transformation efforts cloud computing capabilities. Under the (PSDSP 2021– risk being fragmented, insecure, or unsustainable, 2025, the government prioritized strengthening cloud underscoring the need for continuous investment infrastructure through the migration to MyGovCloud@ in infrastructure to support long-term innovation, PDSA—a hybrid cloud platform accessible to all inclusion, and public sector effectiveness. government entities. This transition has enhanced scalability, interoperability, and resilience across the Malaysia has demonstrated a strong commitment public sector. As of 2023, 70 percent of public sector to building a future-ready public sector by investing agencies—211 in total—have successfully transitioned in digital infrastructure as a foundational enabler of to the platform. Malaysia also distinguishes itself by digital government. Its progress is reflected in global publicly sharing data on cloud usage, security, and cost benchmarks, such as the UN’s Telecommunication savings, a practice uncommon globally, and one that Infrastructure Index, where Malaysia ranks among reinforces its leadership in advancing transparent and the top 20 countries globally—well above the global efficient digital government (Figure 55). FIGURE 54 Malaysia outperforms both OECD and ASEAN peers across key GovTech infrastructure areas 1 Cloud Platform 0.81 0.74 1 Disruptive Technologies 0.86 0.61 0.8 Enterprise Architecture 0.63 0.65 1 Government Service Bus 0.74 0.6 0.59 Open Source Software 0.62 0.38 0 0.2 0.4 0.6 0.8 1 GTMI Score Malaysia OECD ASEAN Source: GTMI 2022, World Bank. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 59 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 55 components include digital identity, digital payments, Malaysia excels in transparency by openly sharing and data exchange platforms, alongside other shared information on cloud usage, security, and cost systems. MyKad is now fully digitalized, and in 2024 the savings government launched MyDigital ID—a secure online Monitoring and publishing of cloud usage, security, savings identity system for seamless access to services—with a target of enrolling 13 million Malaysians by the end GTMI Score of 2025. To support its adoption, Parliament has tabled OECD 52.9% 23.5% 23.5% amendments to the National Registration Act 1959, which will enable the use of MyDigital ID across all ASEAN 60% 20% 20% public and private sector dealings.73 Digital payment adoption is also high—77 percent of Malaysians have 0 20 40 60 80 100 used digital payments, according to the Global FINDEX No Yes (internal, not published) Yes (public, published) 2025—reflecting strong public trust and widespread Malaysia: Yes (public, published) usage. Source: GTMI 2022, World Bank. Complementing its strong digital backbone, Malaysia has advanced in adopting Disruptive FIGURE 56 Technologies (DT) and Open-Source Software Malaysia monitors and publishes data on GSB (OSS). With the National Fourth Industrial Revolution usage, security and savings, outperforming peers (4IR) Policy in place, the country is taking a structured and forward-looking approach to innovation in public Monitoring and publishing of GSB usage, security, savings services. Although its OSS policy is currently advisory, GTMI Score the role of the Government Chief Digital Officer OECD 44.1% 14.7% 41.2% (CDO) ensures coordination and strategic alignment, reinforcing Malaysia’s broader efforts to modernize and future-proof its digital government infrastructure. ASEAN 50% 10% 40% 0 20 40 60 80 100 No Yes (internal, not published) Yes (public, published) Malaysia: Yes (public, published) As governments increasingly rely on data, technology, and Source: GTMI 2022, World Bank. cross-agency collaboration to meet evolving demands, Malaysia has also made significant progress in robust digital foundations strengthening interoperability through the GSB —a central platform that enables different government become essential. systems to securely communicate and share data with one another. Since the launch of the Malaysian Government Data Exchange (MyGDX) in 2018, Despite Malaysia’s strong progress in digital agencies at both federal and state levels have adopted infrastructure, several challenges still need to be the platform to facilitate seamless and efficient data addressed to fully realize its digital government exchange. This has helped reduce duplication, improve ambitions and boost public sector productivity. ser vice deliver y, and suppor t more coordinated Enterprise Architecture (EA)—the framework aligning policymaking. Malaysia outperforms its peers in technology, data, and processes across agencies— this area, with transparency in GSB usage and cost remains underutilized, with limited monitoring and monitoring positioning it as a regional leader in cross- public reporting on its compliance and impact (Figure agency integration (Figure 56). 58). Similarly, while the government has advanced the adoption of interoperability frameworks and OSS to Malaysia has also advanced in building a robust enhance transparency, cost savings, and innovation, digital public infrastructure, critical for delivering the policy is advisory rather than mandatory (Figure 59), interoperable and integrated services. Core constraining its ability to deliver consistent, whole- 73 https://www.biometricupdate.com/202508/malaysias-national-government-super-app-to-launch-imminently 60 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Cost Savings and Efficiencies from Digital Public BOX 5 Infrastructure (DPI) Malaysia’s progress with MyGDX and the GSB reflects a broader global trend: countries are realizing significant fiscal and operational gains by investing in core DPI pillars—digital identity and e-signatures, digital payments, and trusted data sharing—that underpin secure, efficient, and interoperable public services. FIGURE 57 A new approach to digitalization Conventional approaches to digitalization New approaches to digitalization Service Service Service Service Service Service Service Service Data Data Data Data Data sharing sharing sharing sharing sharing Digital Digital Digital Digital Digital payments and invoicing payments payments payments payments Digital ID Digital ID Digital ID Digital ID Digital ID Data Data Data Data Data Data Data Data Source: World Bank Digital Progress and Trends Report, 2023. Evidence from many countries shows how these building blocks can reduce duplication, lower transaction costs, and accelerate service delivery at scale. 1. Digital Identity & E-Signatures: India’s Aadhaar system demonstrates the cost efficiency of large-scale digital identity. Developed for about US$1.5 billion, Aadhaar has generated over US$42 billion in savings by reducing fraud, error, and leakage in public benefit programs. In the banking sector, the cost of verifying a customer’s identity dropped from US$10–12 to around US$0.20, enabling rapid onboarding of millions, especially in underserved areas. 2. Digital Payments: Brazil’s Pix instant payments platform, launched by the Central Bank in 2020, allows 24/7, real-time transfers at minimal cost. By December 2023, more than 153 million people were using Pix, doubling the share of adults with active bank accounts (46.8 percent to 87.7 percent) and supporting over 11 million microbusinesses. Reduced transaction fees and expanded inclusion have spurred a 3,000 percent increase in digital credit users, with estimated annual savings in payment processing costs exceeding USD 5 billion for consumers and businesses combined. 3. Data Sharing: Estonia’s X-Road platform enables secure, automated data exchange across public and private systems, eliminating redundant data requests and paperwork. With 99 percent of services online and e-Tax filing completed in 3–5 minutes, the government estimates annual administrative cost savings of about 2 percent of GDP (roughly USD 800 million), alongside significant time savings for citizens and businesses. Malaysia’s investments in National Digital ID, real-time payments, and MyGDX can yield similar efficiency gains if designed and implemented in line with global best practices. By aligning technical architecture, governance, and interoperability with these proven models, Malaysia can maximize returns on its digital infrastructure and reinforce its position as a regional leader in efficient, inclusive, and future-ready public service delivery. Source: World Bank GovTech Flagship Report for Malaysia (forthcoming). MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 61 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity of-government benefits. With stronger mandates and accelerating cloud migration, and ensuring rigorous institutional capacity, Malaysia can harness EA and OSS EA and OSS implementation, the government can more effectively, aligning with practices in countries unlock AI, big data, and productivity gains across the such as Australia, Estonia, Singapore, Italy, and South public sector. Clearer mandates, transparent reporting, Korea, and setting the stage for greater system-wide and whole-of-government adoption would not only efficiencies. enhance efficiency at home but also cement Malaysia’s place as a global digital leader. Sustained momentum in Building on this foundation, Malaysia is well these areas can transform current progress into world- positioned to seize the next frontier of digital class leadership and ensure that digital transformation government. By strengthening GovTech infrastructure, delivers tangible benefits for citizens. FIGURE 58 FIGURE 59 Malaysia does not actively track or publish data Malaysia does not mandate the Open Source on EA usage, compliance, or its benefits Software policy in the public sector Monitoring and publishing of EA usage, compliance and bene ts Open Source Software policy/action plan for the public sector GTMI Score GTMI Score OECD 64.7% 11.8% 23.5% OECD 8.8% 61.8% 29.4% ASEAN 60% 10% 30% ASEAN 40% 50% 10% 0 20 40 60 80 100 0 20 40 60 80 100 No Yes (internal, not published) Yes (public, published) No Yes (Advisory/R&D) Yes (Mandatory) Malaysia: No Malaysia: Yes (Advisory/R&D) Source: GTMI 2022, World Bank. Source: GTMI 2022, World Bank. GovTech enablers are needed to transform digital foundations into real productivity gains Digital infrastructure may provide the backbone complements74 help create a more coordinated, of a modern government, but it is the surrounding responsive, and citizen-centric public sector—one institutional and organizational conditions that that can fully harness digital tools to deliver better determine whether technology translates into real outcomes. While internet access is a necessar y improvements in service delivery and public sector foundation, it is not enough on its own. Countries productivity. Strong institutions, effective regulations, that pair digital infrastructure with the right regulatory robust data-sharing mechanisms, and a digitally frameworks, talent, and governance capabilities are skilled public workforce are critical enablers that best positioned to capture the full benefits of digital ensure technology is embedded meaningfully within transformation and avoid being left behind. government systems and processes. These “analogue” 74 The World Development Report 2016 on Digital Dividends describes “analog complements” as aspects countries need to work on to reap the benefits of the digital revolution – including regulations, so that firms can leverage the internet to compete and innovate; improved skills, so that people can take full advantage of digital opportunities; and accountable institutions, so that governments respond to citizens’ needs and demands. 62 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Malaysia has strong GovTech institutions, but gaps in coordination, monitoring, and engagement risk limiting their impact Strong institutions are critical enablers of whole- Digital Department (JDN), reflects the government’s of-government (WoG) digital transformation, commitment to transparency, coherence, and inclusive ensuring that digital investments translate into digital governance. It provides a unifying vision and real gains in service delivery, coordination, and roadmap to guide digital initiatives across ministries public sector productivity. A WoG approach is and agencies, ensuring that technological investments increasingly recognized in the GovTech literature are aligned with national development priorities as essential to overcoming institutional siloes and and focused on delivering improved service quality, realizing the broader “digital dividends”. Achieving this efficiency, and public trust. This positions Malaysia requires a clear strategic vision, a dedicated mandate alongside the majority of countries in the region and for digital government, and robust coordination globally, 70.6 percent of OECD countries and 90 mechanisms across ministries, sectors, and levels of percent of ASEAN countries have similarly current government. These institutional features—alongside strategies (Figure 61) placing Malaysia in solid regional effective regulations and accountable leadership—are and global standing. the key analogue complements that allow governments to harness technology in a coherent, inclusive, and results-driven way. FIGURE 60 Malaysia stands out for institutionalizing a whole- Malaysia has made significant advances to of-government (WoG) approach to public sector embed digital transformation within the public digital transformation sector’s institutional fabric. A key milestone was WoG approach to public sector digital transformation the creation of the Ministry of Digital (MOD) in 2023, GTMI Score bringing together key agencies such as MyDIGITAL Corporation and JDN under a single ministry. This OECD 17.6% 82.4% institutional reform aims to streamline functions, improve cross-agency coordination, and provide ASEAN 10% 30% 60% stronger leadership over the national digital agenda. The Ministry is tasked not only with promoting digital 0 20 40 60 80 100 innovation and economic development but also with No Planned/In drafting stage Yes (Institutionalized) improving public service delivery and strengthening Malaysia: Yes (Institutionalized) institutional governance, infrastructure, and digital Source: GTMI 2022, World Bank. talent development. Malaysia’s institutional model demonstrates how FIGURE 61 a whole-of-government approach can accelerate Malaysia’s GovTech transformation strategy is up digital transformation. Reflecting global best to date, in line with peers practices seen in countries such as Singapore, South Korea, and Denmark, a single coordinating ministry GovTech/Digital transformation strategy provides unified leadership and ensures reforms GTMI Score extend across the entire public sector. Building on this OECD 2.9% 26.5% 70.6% foundation, Malaysia stands out for institutionalizing a whole-of-government (WoG) approach (Figure 60), supported by cross-government digital forums and ASEAN 10% 90% transparent reporting systems that track progress and 0 20 40 60 80 100 spending, mechanisms that reinforce coordination and accountability, and remain uncommon globally. Planned/In draft Yes (Old/To be updated) Yes (New/Current) Malaysia: Yes (New/Current) These institutional foundations are anchored Source: GTMI 2022, World Bank. in a clear and up-to-date PSDSP 2021-2025. The strategy is publicly accessible via the National MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 63 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Malaysia has further reinforced these efforts in accountability, improve value-for-money assessments, the recent 13th MP, which introduces new GovTech and enable early identification of implementation gaps. initiatives to accelerate public service reform. The plan emphasizes the development of a unified digital FIGURE 62 platform based on the Government-as-a-Platform Malaysia has a Coordination Body leading model, the expansion of secure cloud infrastructure, GovTech Initiatives, in line with peers and ahead and wider adoption of EA to reduce fragmentation. It of many ASEAN countries... also promotes the strategic use of AI and big data for Coordination body leading GovTech initiatives more responsive and evidence-based policymaking. Complementing these technological upgrades GTMI Score are institutional reforms aimed at strengthening OECD 21% 79% governance, enhancing digital capabilities in the public service, and embedding citizen-centric approaches ASEAN 50% 50% through tools like behavioral insights audits and digital satisfaction metrics. 0 20 40 60 80 100 No Yes Malaysia has established a strong institutional Malaysia: Yes foundation for GovTech, including a dedicated high- level coordination body in 2021 —the Modernization Source: GTMI 2022, World Bank. and MyDIGITAL Government Cluster Committee (Mesyuarat Jawatankuasa Pemodenan dan MyDIGITAL Kluster Kerajaan), chaired by the Chief Secretary to the FIGURE 63 Government, which brings together senior officials to ...but it has yet to have an entity to monitor & discuss public sector modernization and MyDIGITAL report WoG Digital/GovTech spending priorities (Figure 62). At the ministerial level, the Entity to monitor and report digital/GovTech spending for the WoG National Digital Economy and 4IR Council (MED4IRN), GTMI Score chaired by the Prime Minister, provides overarching strategic direction on the digital economy and the OECD 38% 62% Fourth Industrial Revolution, though it is not GovTech- specific. This is in line with close to 80 percent of OECD ASEAN 50% 50% countries and half of ASEAN countries. 0 20 40 60 80 100 An important institutional reform has been the No Yes restructuring of MAMPU into the Jabatan Digital Malaysia: No Negara (JDN) under MOD. While MAMPU long Source: GTMI 2022, World Bank. supported Malaysia’s digital agenda, its role was often constrained by coordination and enforcement challenges. JDN has been established to address these limitations and provide stronger institutional leadership In practice, coordination gaps are also reflected over the government’s digital transformation efforts. in uneven engagement across ministries. On At the heart of these efforts, JDN now serves as average, 61 percent of public servants reported that the government’s central GovTech institution, their ministry is engaged in digital transformation responsible for overseeing the implementation of efforts. However, results show wide variation: while digital government policies, managing eGovernment the Ministry of Digital reports strong involvement, platforms and services, and promoting digital skills other ministries—such as Human Resources, Foreign development. Affairs, and Defense—report significantly lower levels of engagement, often falling well below the national Nonetheless, the full operationalization of JDN’s average (Figure 64). This variation not only limits whole- enhanced role remains essential. Without it, of-government coordination but also affects effective Malaysia continues to face challenges in systematically targeting of digital skills training and capacity-building monitoring and reporting on digital or GovTech efforts. investments and performance across the government —functions already present in over 60 percent of OECD Despite the importance of collaboration for countries and half of ASEAN countries through formal effective digital transformation, survey results monitoring mechanisms (Figure 63). Strengthening suggest it is rarely prioritized at the strategic JDN’s mandate in this area would help ensure planning level. While most public servants indicated 64 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 64 Public servants report varied levels of collaboration on digital efforts across agencies75 Percentage of respondents who agree that "My organization has been kept informed and engaged on developments related to digital government" 90 85 80 70 Average: 61% 60 50 42 40 30 20 10 0 MOHR MOFA PETRA MINDEF MPIC MOTAC MEDAC KPWKM MOT MOH MOHE KPKT MOF KKDW MAFS MOW PMD KE KPDN NRES MOE KPN KBS MOSTI MITI MOC KDN MOD Source: GovTech Skills Survey of Malaysian Public Servants 2025. that their ministry’s digitalization plan considered infrastructure (68 percent), staff capacity (68 percent), A whole-of-government and financial implications (65 percent), far fewer approach is increasingly reported that collaboration was factored into planning. Only 18 percent said collaboration within agencies recognized in the GovTech was considered, and just 16 percent reported that literature as essential to collaboration across agencies was taken into account. overcoming institutional Moreover, only 14 percent indicated that staff feedback had informed planning, and a mere 3 percent noted any siloes and realizing the consideration of citizen feedback. This siloed approach broader “digital dividends”. limits the effectiveness of GovTech reform initiatives and risks creating digital solutions that are misaligned with user needs. For Malaysia’s digital transformation cross-agency coordination (54 percent) are seen as to be truly impactful, strategic planning must embed the most important enablers for improving GovTech collaboration, shared accountability, and user-centered implementation. This underscores the urgent need design at its core. for Malaysia to complement formal institutional reforms with “soft” governance elements—such Public servants themselves have identified as leadership engagement, cultural change, and the need for more structured and supportive operational tools. Strengthening these aspects will be mechanisms for collaboration. Survey findings critical to operationalizing Malaysia’s digital ambitions, highlight that clearer collaboration rules (reported by maximizing the impact of existing strategies, and 75 percent of respondents), stronger communication ensuring the public sector is equipped to deliver more from leadership (67 percent), and new tools to support connected, responsive, and citizen-focused services. 75 Abbreviations: Ministry of Agriculture and Food Security (MAFS); Ministry of Communications (MOC); Ministry of Defence (MINDEF); Ministry of Digital (MOD); Ministry of Domestic Trade and Cost of Living (KPDN); Ministry of Economy (KE); Ministry of Education (MOE); Ministry of Energy Transition and Water Transformation (PETRA); Ministry of Entrepreneur and Co-operatives Development (MECD); Ministry of Finance (MOF); Ministry of Foreign Affairs (MOFA); Ministry of Health (MOH); Ministry of Higher Education (MOHE); Ministry of Home Affairs (KDN); Ministry of Housing and Local Government (KPKT); Ministry of Human Resources (MOHR); Ministry of Investment, Trade and Industry (MITI); Ministry of National Unity (KPN); Ministry of Natural Resources and Environmental Sustainability (NRES); Ministry of Plantation and Commodities (MPIC); Ministry of Rural and Regional Development (KKDW); Ministry of Science, Technology and Innovation (MOSTI); Ministry of Tourism, Arts and Culture (MOTAC); Ministry of Transport (MOT); Ministry of Women, Family and Community Development (KPWKM); Ministry of Works (MOW); Ministry of Youth and Sports (KBS); Prime Minister’s Department (PMD). MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 65 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Supported by the recent Data Sharing Act, Malaysia can unlock AI-driven productivity through greater cross-agency data sharing The success of the 13th MP’s GovTech ambitions— Sharing public sector data—both internally within particularly in deploying AI and big data analytics government and externally through Open Data—is for productivity gains—rests on seamless a strategic pillar of a comprehensive data-sharing public sector data sharing. The 13 th MP calls for agenda, and Malaysia has made considerable strengthening interoperability and breaking down progress on both fronts. Internal sharing enables data silos as part of its digital transformation strategy, government agencies to access the information they with measures to expand machine-readable datasets, need to function effectively, while external sharing enable real-time sharing across agencies, and align promotes transparency and innovation. Malaysia’s public sector data infrastructure with national AI and strong performance is reflected in the World Bank’s cloud computing ambitions. These are not merely GovTech Maturity Index (GTMI), where it scored above technical aspirations: interoperability and open flows the OECD average (0.78) and well above the ASEAN of data are fundamental preconditions for efficient average (0.51). This is driven by well-structured data service delivery, evidence-based policymaking, and governance and the leadership of the Government higher productivity across government. AI applications CDO Office, which coordinates data management cannot function without diverse, high-quality datasets, across government (Figure 66a). Notably, only 40 while big data analytics depends on timely, integrated percent of countries in the GTMI database have such information across ministries. Survey results reinforce a dedicated entity, underscoring Malaysia’s proactive this, with 69 percent of civil servants agreeing that data institutional approach. Similarly, in the Global Data sharing improves decision-making (Figure 65). Demand Barometer (GDB), Malaysia scored 42—higher than all for data is also high: in the Ministry of Economy, 91 ASEAN peers—showing strengths in the capabilities percent of officials request data at least quarterly, often and use-and-impact pillars, though still trailing OECD more frequently. Yet without stronger frameworks to countries (Figure 66b). Together, these results highlight institutionalize data sharing, persistent silos threaten that Malaysia has built strong foundations for using to undermine service quality, efficiency, and policy data in policymaking and service delivery. accuracy—ultimately constraining the productivity gains that digital transformation seeks to deliver. FIGURE 65 Public servants value and actively request data, with policy ministries leading the way a) The majority of public servants agree that sharing b) The majority of public servants request data from data with other agencies improves decision-making other agencies, with strategic policy-making ministries being the most frequent Percentage of respondents who agree that "Sharing data with Percentage of respondents whose frequency of requesting data other agencies improves decision-making" from other agencies is quarterly or more frequent 100 100 90 91 90 90 80 80 Average: 69% 70 70 60 54 60 Average: 51% 50 50 40 40 33 30 30 20 20 10 10 0 0 MOE MOHE KKDW MPIC KBS MOC MAFS KPWKM MOSTI MOHR MOH KDN MOTAC KPDN MINDEF MOF PMD KPN PETRA KPKT KE MITI MOFA NRES MOT MOW MEDAC MOD MOHR MOE KBS MINDEF MOH MOSTI MOHE MAFS NRES KPKT KPN KPWKM KKDW MOC MPIC PETRA MOTAC MOT MOW PMD MOF MOD MEDAC KPDN KDN MOFA MITI KE Source: GovTech Skills Survey of Malaysian Public Servants 2025. 66 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 66 Malaysia leads ASEAN on data governance in both the GTMI and Global Data Barometer, though it still trails OECD peers a) Malaysia outperforms peers on the GTMI Data b) Malaysia’s GDB score shows strong foundations, Governance Institutions indicator driven by strong placing it ahead of ASEAN countries but still behind practices and leadership OECD peers Malaysia 0.79 Malaysia 42 OECD 0.78 OECD 55 ASEAN 0.51 ASEAN 33 0 0.2 0.4 0.6 0.8 1 0 10 20 30 40 50 60 GTMI Score GDB Score Source: GTMI 2022, World Bank; Global Data Barometer, World Wide Web Foundation. Malaysia has rightly prioritized the use and sharing ecosystems, and improved citizen services. Together, of public sector data, evidenced by the publication these measures position Malaysia to move from strong of high-level plans both at the national and whole- capability to full integration of data sharing across of-government level. Various policy frameworks— government—unlocking greater efficiency, innovation, including the Malaysia Digital Economy Blueprint and citizen trust. (MDEB), National Data Sharing Policy (NDSP), and PSDSP — prioritize the use and sharing of public To support policy implementation, Malaysia has sector data at high levels. These policies have also built a strong infrastructure for public sector set ambitious targets for machine-readable data, data sharing, anchored by two core platforms: Application Programming Inter face (API) access, the MyGDX for internal government use and the and adoption of the MyGDX platform. A major leap Public Sector Open Data Platform (data.gov.my) for forward came with the Data Sharing Act 2025, which public access. MyGDX, launched in 2018, integrates establishes a legal mandate, creates clear request data across agencies to enable end-to-end services, procedures, and empowers the National Data Sharing streamline coordination, and lower integration costs. Committee to enforce compliance. The 13 th MP Significant upgrades in 2021–2022 introduced MyGDX builds on these policy commitments by embedding 2.0, adding API catalogues, real-time monitoring, audit data sharing as a core enabler of digital government, trails, encryption, and SSL certificates—improving linking it to economic competitiveness, innovation trust and usability (Figure 67). In parallel, data.gov.my FIGURE 67 Demand and use for data is rising rapidly, with further potential to maximize impact of data sharing a) Uptake of MyGDX services has increased in recent b) Transactions have surged dramatically since 2023 years, with clear spikes in API subscriptions and consumers MyGDX annual statistics 2018-2025 Transactions (starting May 26, 2018) 200 4,500,000 4,000,000 3,500,000 150 Number of Consumers 3,000,000 2,500,000 100 2,000,000 API 1,500,000 50 S2S integration API Subscription 1,000,000 500,000 Data Provider Agency 0 0 2018 2019 2020 2021 2022 2023 2024 2025 2018 2019 2020 2021 2022 2023 2024 2025 Source: MyGDX MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 67 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity consolidates unrestricted, cleaned datasets voluntarily planning, disaster response, logistics, and healthcare. published by various agencies for public use, with How the various platforms will be coordinated to avoid contributions steadily growing. In parallel, DOSM overlap, however, remains unclear. also operates OpenDOSM, offering freely accessible statistical data collected by DOSM though this Beyond these central platforms and in the absence represents only a limited subset of collected data and of a legally binding Open Data mandate, some the broader open data ecosystem. Implementation is ministries release limited datasets via reports or further supported by a two-tier governance structure statistical publications, but these are not aligned and a nationwide network of CDOs, with a recently with Open Data standards. Often in the form introduced sectoral governance model designed of annual reports or statistical publications, these to better align data initiatives with service delivery publications are voluntarily-disclosed aggregate priorities. Under the 13th MP, the MOD will establish a statistics at the ministry level. While informative, National Data Bank as a central repository uniting high- such data often lacks machine-readable formats and quality datasets from across ministries and sectors, interactive features like APIs, reducing their utility and alongside deploying digital twin technology to enable data re-use. These limitations diminish the gains from AI-driven decision-making in areas such as urban digital dividends. Unlocking public value from data requires moving towards an ‘open-by-default’ culture, where data is routinely shared and reused to drive better services Whilst Malaysia has established strong foundations wider reuse (Figure 68). Despite high overall scores in for public sector data sharing—through policy, global indices mentioned above, Malaysia’s progress legal frameworks, and digital infrastructure— is largely limited to sharing of statistical data, while public value can only be fully realized when data administrative data—particularly on service delivery is actively curated, shared, published, and reused. and program outcomes—remains far less accessible The OECD government data value cycle shows that the than in OECD countries (Figure 69a). Malaysia also greatest potential for impact arises when data moves lags ASEAN countries in the Global Data Barometer’s beyond internal use to being openly available for Availability sub indicator which measures disclosures FIGURE 68 The OECD government data value cycle Public value Using and Collecting and Storing, securing Sharing, curating re-using generating and processing and publishing • Statistical analysis • Machine learning • Published date (e.g. open data) • Storage • Handle requests and • Visualization agreements • Sensory data (e.g. CCTV) • Quality management • Policy and service decisions • Data sharing platforms • Life decisions • Requested data (e.g. forms) • Catalogue • Open Data websites • Performance insights • Admin data (e.g. contracts) • Cleansing Impacts the public sector Impacts the public sector Impacts the public sector Impacts the public sector and public stakeholders and public stakeholders Non-government Government sources sources Source: OECD (2019). 68 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 69 Malaysia’s data sharing remains focused on statistics, while administrative data on services and outcomes is far less accessible—more effort is needed to match OECD standards on open data and disclosure a) Malaysia trails OECD countries in the disclosure of b) The GDB places Malaysia mid-range between OECD service delivery data across 23 indicators and ASEAN peers, with weaker performance on data availability GTMI Score ASEAN 69 OECD Malaysia 56.5% 17.4% 26.1% 64 Malaysia 55 53 53 OECD 49% 16% 35% 45 42 40 36 35 33 ASEAN 64.7% 12.1% 23.2% 31 27 24 19 0 20 40 60 80 100 No Yes (internal, published) Yes (external, published) GDB Score Governance Capabilities Availability Use and Impact Source: GTMI 2022, World Bank; GDB, World Wide Web Foundation; WB Analysis. and publication of administrative data (Figure 69b). broader transparency and accountability metrics, Bridging this gap is critical: without bold reforms such as the RTI and Open Government indicators to open up administrative datasets, Malaysia risks in the GTMI, as well as World Justice Project scores underutilizing one of the most powerful enablers of on published laws, government data, and budget better governance, service delivery, and public trust. transparency—areas where Malaysia underperforms against several regional peers and fall short of OECD International benchmarking data further reveal standards (Figure 70). that, despite high scores on specific Open Data measures (driven largely by the launch of A culture of “secrecy by default” is ultimately OpenDOSM in 2023), access to public sector data reinforced by a lack of foundational reforms remains highly restricted and selectively disclosed. in access to information that underpin Open While the portal meets the broad definition of Open Government, without which genuine efforts Data, the prevailing culture is still one of “secrecy by in sharing of public sector data risks being default”. This is reflected in weaker performance on performative. Open Government harness the value FIGURE 70 High scores on specific Open Data measures contrast with weaker performance on broader transparency and accountability, reflecting a gap between policy and practice a) Malaysia scores well on Open Data platforms but b) Malaysia underperforms on key transparency and lags on broader transparency measures accountability metrics, trailing both regional peers and high-income countries 0 Published Laws and Government Data RTI 0.88 0.39 Malaysia 0.285 East Asia & Paci c 0.441 0 Open Gov 0.96 High Income 0.751 0.5 0 0.2 0.4 0.6 0.8 1 GTMI Score 1 Open Budget Index Open Data 0.98 Malaysia 0.54 0.77 Malaysia 0.54 East Asia & Paci c 0.632 East Asia & Paci c 0.632 0 0.2 0.4 0.6 0.8 1 High Income 0.736 GTMI Score High Income 0.736 Malaysia OECD ASEAN 0 0.2 0.4 0.6 0.8 1 GTMI Score Source: GTMI 2022, World Bank; GDB, World Wide Web Foundation. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 69 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity of public sector data from a delivery tool to a culture adoption. In an operating environment where “secrecy of governance rooted in transparency, participation, as the default” remains the norm, structural and cultural accountability, and responsiveness.76 Without legal resistance further limit progress, while the absence of guarantees, commitments to share public sector data common standards for data quality, timeliness, and may be selective, and preserve the status quo. The consistency reinforces uneven practices and weakens planned Freedom of Information (FOI) Act, expected to trust in shared datasets. Closing these implementation be tabled by the end of 2025, offers an opportunity to and data governance gaps will be critical for Malaysia shift toward “open by default” by granting public users to fully leverage its data governance investments for enforceable rights to access government information. improved decision-making, efficiency, and innovation. While the relevant institutional and policy The Public Sector Data Sharing Policy (PSDSP), frameworks are in place, in practice, persistent introduced in 2021, represents a major step operational barriers—continue to limit Malaysia’s forward in clarifying and formalizing the process ability to fully unlock the public value of data for for sharing public sector data, but implementation productivity, service delivery, and citizen trust. challenges persist. It establishes a governance Sur vey findings show that most public ser vants structure within each ministr y, depar tment, and face obstacles, most commonly citing technical agency (MDA) and provides clear procedures for both incompatibility (59 percent), the lack of clear policies/ requesting and approving data sharing. The policy guidelines (54 percent), and legal or regulatory also nudges MDAs to publish open datasets on the restrictions (50 percent) (Figure 71). Other barriers national open data portal (data.gov.my), aiming to include a lack of trust between agencies (44 percent), improve accessibility and transparency. By setting insufficient resources and capacity (36 percent), and out clear steps—from identifying available data to limited awareness of benefits (35 percent). Only a grant approvals—it addresses earlier gaps where both small minority (3 percent) report no barriers at all, government agencies and the public lacked clarity underscoring a persistent gap between enabling on how data could be shared (Figure 72). However, frameworks (de jure ) and actual implementation (de despite these structured processes, actual compliance facto). These survey insights mirror broader institutional remains uneven, with many datasets not yet reflected constraints: without formal enforcement powers, on the open data platform, and agencies still varying compliance with data sharing policies still relies widely in how they interpret and apply the policy’s on voluntary buy-in, leading to patchy and uneven requirements. FIGURE 71 Public servants face multiple barriers that hinder data sharing across agencies Barriers that hinder data sharing across agencies, Percentage Technical incompability 59 Lack of clear policies/guidelines 54 Legal/regulatory restrictions 50 Lack of trust between agencies 44 Insuf cient resources/capacity 36 Limited awareness of bene ts 35 No barriers - data is openly shared 3 0 10 20 30 40 50 60 70 Source: GovTech Skills Survey of Malaysian Public Servants 2025. 76 Aichida Ul-Aflaha;Mary L. Mcneil;Saki Kumagai.2020. Building Blocks and New Frontiers for Open Government. Washington, D.C. : World Bank Group. 70 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 72 Standard procedure for data sharing request and approval Decision node Official Open Yes Inform link to End Action/Event data data? access data Sub-process 3 Determine No Data request No Inform denial Start request End from MDA category of request 1 Official Consider- 5 secret ation & 2 data approval No Data sharing agreement Yes 7 Data Sharing Charge? End preparation of data 4 Yes Data sharing 8 9 agreement & 6 payment terms Source: Public Sector Data Sharing Policy (2021) and World Bank GovTech Flagship Report for Malaysia (forthcoming). In practice, the effectiveness of the PSDSP is cross-agency collaboration. In the context of Open hindered by highly decentralized decision-making, Data on data.gov.my, dataset publication and updates where each MDA implements its own sub- remain dependent on the willingness of data owners, processes and retains broad discretion over what resulting in inconsistent coverage and outdated data to share and when. The approval process can information. Survey findings reinforce these challenges, involve multiple rounds of discussion, reviews by with over half of public servants citing a “lack of clear various committees, legal and finance checks, and policy/guidelines” as a barrier, despite the existence even ministerial sign-off for declassification—often of formal procedures—highlighting the gap between stretching timelines and creating significant uncertainty policy intent and operational reality (see Figure 71). for requestors. This variability, combined with case- by-case decision-making and a persistent “secrecy as The Data Sharing Act 2025 (Act 864) marks default” culture, limits the speed and responsiveness a significant step in providing a clear legal of data sharing, especially for time-sensitive policy foundation for the sharing of public sector data, or service delivery needs. Differences in internal offering much-needed certainty to ministries, requirements—such as additional endorsements from departments, and agencies (MDAs). It clarifies that other ministries or unique conditions for certain data MDAs can request and share official data for specified types—further complicate the process and discourage purposes, removing the previous ambiguity that left FIGURE 73 Scope and Exemptions under the Data Sharing Act 2025 Universe of public sector data Universe of government Federal Government & Federal Statutory Of cial Data Bodies State Governments Of cial Secret Data Local Governments Excluded from Data Sharing Act Source: World Bank GovTech Flagship Report for Malaysia (forthcoming). MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 71 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity department heads making ad hoc and sometimes risky making on the data owner, which can reinforce decisions. By formalizing permissible practices, the Act reluctance among already hesitant MDAs. Its exclusion reinforces existing data sharing efforts and provides a of state and local governments limits opportunities more structured framework for those already inclined for coordinated service delivery in areas such as to collaborate. However, its scope remains limited, climate change and housing, where cross-jurisdictional excluding data classified under the Official Secrets collaboration is essential. Moreover, because the Act Act 1972, as well as data protected by other secrecy operates alongside existing secrecy laws—the Official provisions, and does not extend to sharing with state Secrets Act 1972 and those listed in the Schedule of or local governments, nor with external stakeholders the Data Sharing Act 2025, it preserves a restrictive (Figure 73). While future amendments may broaden operational environment and keeps data sharing their reach, the current framework is focused on as the exception rather than the norm. This leniency federal-level exchanges within the public sector. contributes to Malaysia’s weaker performance on global transparency and accountability indicators, However, Act 864 in its current form has little including the World Justice Project’s measures on impact on the entrenched culture of “secrecy as Open Government and Right to Information, where the default,” which continues to hinder meaningful Malaysia underperforms compared to regional and data sharing. The law allows—but does not compel— global peers (refer to Figure 18b). agencies to share data, placing the burden of decision- Malaysia’s public service digital skills form a pyramid of foundational, intermediate, and advanced expertise Digital skills in public service exist along a but the application of advanced digital skills is more continuum, with foundational competencies needed limited and role-specific—particularly among those in by nearly all staff and progressively fewer requiring information systems functions (Figure 75). intermediate, advanced, or highly specialized skills (Figure 74). This pyramidal distribution reflects the FIGURE 74 nature of public sector roles: foundational skills enable Digital skills in public services follow a pyramidal daily engagement with systems, while advanced and distribution specialized skills are concentrated in roles focused on developing and securing digital solutions. As digital technologies become more embedded in government Highly specialized operations, demand for intermediate skills is expected to grow. 4 Pro ciency Levels Advanced Digital skills in the Malaysian public service mirror this layered demand. Nearly all respondents reported relying on foundational or intermediate digital skills Intermediate in their work,77 with 64 percent saying these skills are essential for over 75 percent of their tasks. In contrast, Basic advanced digital skills were deemed critical by only 20 percent of respondents for the majority of their work. Percent of workforce Patterns across service schemes reinforce this trend: foundational and intermediate skills are widely used, Source: World Bank Tech Savvy, 2022. 77 In the GovTech Skills Survey of Malaysian Public Servants 2025, foundational skills are defined as “knowledge and use of common digital tools such as Microsoft Word, email etc.”; Intermediate skills as “performing digital tasks independently using collaborative tools”; Advanced skills as “knowledge and use of advanced tools such as analysis in Microsoft Excel etc.”; and Highly specialized as “expert in a range of digital tools; leads digital transformation projects”. 72 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 75 FIGURE 76 Across service schemes, patterns of digital skills Foundational digital skills are reportedly strong, use reinforce this layered demand with gaps in more advanced skills78 Public servants using foundational and advanced digital skills in Gaps between Manager-Reported Suf ciency and Self-Reported over 50% of their daily work by scheme, Percentage Pro ciency, Percentage 100 Word processing applications 72 95 80 Email 63 93 60 Spreadsheet applications 60 88 40 20 Video conferencing 60 89 0 Presentation tools 54 87 Maritime Enforcement (T) Talent & Arts (B) Skills (H) Medical & Health (U) Prevention (P) Consultation & Judiciary (L) Others Agriculture (G) Finance (W) Security & Public Service (K) Police (V) Administrative & Diplomatic (M) Research & Development (Q) Education (D) Economy (E) Engineering (J) Social (S) Science (C) Transportation (A) Armed Forces (Z) Administration & Support (N) Information Systems (F) Online collaborative tools 45 79 DDMS 2.0 31 57 Emerging technologies 17 31 0 20 40 60 80 100 Foundational Advanced Manager-Reported Suf ciency Self-Reported Pro ciency Source: GovTech Skills Survey of Malaysian Public Servants 2025. Source: GovTech Skills Survey of Malaysian Public Servants 2025. Proficiency levels follow a similar pattern. Most FIGURE 77 public servants report strong foundational skills, Across service schemes, intermediate skills (such especially in tools like word processing, email, and as the use of presentation tools) are strong, while video conferencing, with rates exceeding 90 percent gaps remain in emerging technologies and rising as high as 97 percent in information systems Self-reported pro ciency in presentation tools and emerging roles. However, managers tend to rate staff proficiency technologies by scheme, Percentage of respondents lower, particularly in emerging technologies (Figure 76). 100 Only 31 percent of staff reported proficiency in these 80 areas, while just 17 percent of managers considered 60 staff skills sufficient —pointing to a gap between confidence and actual capability. Information systems 40 roles show the highest uptake in emerging tools (up 20 to 45 percent at intermediate or advanced levels), but other schemes lag, underscoring both progress from 0 Skills (H) Consultation & Judiciary (L) Others Talent & Arts (B) Security & Public Service (K) Police (V) Medical & Health (U) Transportation (A) Armed Forces (Z) Prevention (P) Finance (W) Social (S) Administration & Support (N) Administrative & Diplomatic (M) Agriculture (G) Education (D) Economy (E) Engineering (J) Science (C) Research & Development (Q) Information Systems (F) Maritime Enforcement (T) recent digital skills investments and the need to close gaps across schemes and skill level (Figure 77). As digital technologies become more embedded in government operations, demand for intermediate Presentation Tools Emerging Technologies skills is expected to grow. Source: GovTech Skills Survey of Malaysian Public Servants 2025. 78 Online collaborative tools are apps that let people work together, share, and edit things online at the same time (e.g., Google Drive, Microsoft 365, etc.). DDMS 2.0 is defined as “Digital Document Management System” in the GovTech Skills Survey of Malaysian Public Servants 2025. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 73 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Effective HRM is vital to equip Malaysia’s public service with the digital talent to drive transformation The Malaysian public service has made important FIGURE 78 progress in recognizing the role of digital skills in Malaysia has a strategy and structured program enabling more effective, responsive, and innovative to enhance digital skills in the public service service delivery. As digital transformation advances, Government strategy/program in place to improve digital skills the ability to systematically identify, recruit, develop, in the public sector and retain digitally skilled talent will be key to success. GTMI Score This requires a clearer understanding of where specific OECD 2.9% 38.2% 58.8% competencies are lacking, particularly in areas like data analytics, cybersecurity, and emerging technologies— ASEAN 10% 30% 60% skills that are often difficult to attract and retain due to structural rigidities in public service systems. 0 20 40 60 80 100 No Yes (either/or) Yes (both) At the institutional level, Malaysia has shown Malaysia: Yes (both) strong commitment through both a national Source: GTMI 2022, World Bank. strategy and a str uctured digital s kills development program. These efforts place Malaysia in line with regional and international practices, with compared to the private sec tor. International over half of ASEAN and OECD countries implementing experience shows that even in systems with public similar approaches (Figure 78). While participation in sector wage premiums, digital talent remains hard Malaysia’s Digital Skills program is currently voluntary to retain. To stay competitive, Malaysia will need for new public servants, broader adoption could help to rely more on non-salar y incentives—such as standardize digital competencies across government. strategic recruitment, professional development, Transparency in reporting outcomes further reinforces empowerment, and public service motivation—as seen accountability and supports continuous improvement. in countries like Estonia, Germany, and Singapore. In this context, strengthening HRM systems across As demand for digital talent grows, effective recruitment, training, performance management, and human resource management (HRM) practices leadership will be critical to build the institutional will be essential. Public service recruitment faces capabilities needed to support and sustain Malaysia’s constraints, including less competitive salaries digital transformation and GovTech ambitions. Progress on digital skills in recruitment and appraisal is uneven, with ongoing challenges in attracting and retaining talent Malaysia’s public service has taken steps toward (both job tests and interviews) seen in countries like more structured, competency-based recruitment, the Philippines (Figure 79). More encouragingly, but practices remain inconsistent across younger cohorts are more likely to have undergone ministries and roles. Most recruitment still relies on both assessments, indicating gradual improvement. single interviews (71 percent), with fewer agencies However, recruitment approaches vary widely by using combined interview and job test approaches ministry (Figure 80). For instance, the Ministry of (42 percent). Cross-country comparisons indicate Digital (MOD) and the Ministry of Entrepreneur and that Malaysia’s use of combined interview and job Co-operatives Development (MECD) are more likely test recruitment methods is broadly comparable to to use combined assessments, while others like Health many peers but still trails behind stronger practices and Works still rely heavily on interviews alone. While 74 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity recruitment practices are customized to some extent criterion after education and job-specific skills—but based on service schemes, this variation underlines the are still not fully institutionalized. Currently, recruitment need to further institutionalize structured recruitment criteria highlight a strong but sometimes varied focus processes that can reliably and objectively assess on these skills (Figure 81). Educational background and the full range of digital and behavioral competencies job-specific skills remain the top criteria (97 percent required for transformation. A dedicated digital and 77 percent, respectively), with digital skills ranking skills competency framework would be an important third at 72 percent. While this demonstrates clear step in this direction, providing ministries with clear recognition of their importance, it also signals that benchmarks to align recruitment, training, and career digital skills are not yet fully prioritized on par with core development with Malaysia’s GovTech ambitions. professional or academic qualifications. Even in ICT roles, only two-thirds of respondents said digital skills Embedding digital skills as a criterion in were an important hiring factor, and specialized skills recruitment is gaining traction. In Malaysia, digital are rarely prioritized (Figure 82). competencies rank as the third most considered FIGURE 79 FIGURE 80 Malaysia’s use of combined interview and job test There exists a wide variation in recruitment recruitment methods is broadly comparable to practices (job tests and interviews) across ministries many peers but still trails behind countries with stronger practices79 Share of public servants who underwent both a job test and interview during recruitment, Percentage Share of public servants who underwent both a job test and 80 interview during recruitment, Percentage 70 67 90 79 80 60 69 70 60 50 60 Average: 42% 50 40 42 38 40 33 30 26 30 26 20 16 20 10 3 5 10 0 0 Greece Estonia Croatia Lithuania Poland Armenia Malaysia Ethiopia Pakistan Philippines MOH MOW MOSTI MOHR MAFS KBS PETRA NRES MOHE KPN MOE MPIC KKDW PMD MOD KPKT MOTAC MOT KPWKM MINDEF KDN MOF MECD MITI KE KPDN MOC MOFA Source: GovTech Skills Survey of Malaysian Public Servants 2025. Source: GovTech Skills Survey of Malaysian Public Servants 2025. FIGURE 81 FIGURE 82 In terms of criteria for recruitment, digital skills Across service schemes, digital skills remain to be are an important consideration, but not fully universally considered during recruitment institutionalized Recruitment criteria - Digital skills by scheme, Percentage Recruitment criteria, Percentage 67 70 60 Educational background 97 50 42 40 30 Job-speci c skills 77 20 10 Digital skills 72 0 Consultation & Judiciary (L) Education (D) Others Administrative & Diplomatic (M) Research & Development (Q) Prevention (P) Agriculture (G) Engineering (J) Medical & Health (U) Finance (W) Social (S) Science (C) Talent & Arts (B) Transportation (A) Administration & Support (N) Economy (E) Security & Public Service (K) Skills (H) Information Systems (F) Previous work experience 62 Legal knowledge 54 Support from personal networks 37 0 50 100 Source: GovTech Skills Survey of Malaysian Public Servants 2025. Source: GovTech Skills Survey of Malaysian Public Servants 2025. 79 The selection of comparator countries reflects the availability of comparable diagnostics from similar surveys undertaken by the World Bank around the world, which are suitable for benchmarking. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 75 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity These gaps are compounded by widespread among staff with advanced or specialized digital challenges in attracting digital talent. Nearly half skills, and reaching 73 percent in the Ministry of Home of respondents across ministries reported difficulty in Affairs, a level of churn that risks the continuity and recruiting staff with digital skills, with the most acute momentum of digital transformation efforts (Figure challenges in the Ministry of Digital (64 percent) (Figure 85). While private sector opportunities remain a major 83). Barriers stem largely from within the public service draw, internal issues such as limited career progression, itself, including outdated systems, unclear career paths, lack of recognition, and persistent salary gaps also and uncertainty about needed skills—factors that contribute to attrition. These findings highlight the weigh more heavily than even salary competitiveness need to strengthen HR practices not only at entry but with the private sector (Figure 84). throughout the employee lifecycle—through better performance management, skill development, and a Retention poses an equally urgent challenge. Over workplace culture that values digital expertise. 60 percent of respondents observed high turnover FIGURE 83 FIGURE 84 Across ministries, staff report challenges in Recruitment of digital talent faces challenges both attracting digital talent internal and external to the service Respondents who report dif culty in attracting digital talent, Challenges in recruiting staff with digital skills, Percentage Percentage 70 Poor equipment/software 51 64 60 No clear career path 49 Average: 49% Uncertainty on skill priorities 47 50 Dif cult nding candidates 41 40 35 Low salaries 38 30 Competition with private sector 28 20 Lack of support from management 24 Long recruitment process 21 10 Short-term funding 15 0 No challenges 1 MOFA MITI MOSTI MOW MOHR MOHE MOC MOE MOF MECD MINDEF KKDW PMD KPWKM MAFS MPIC KDN KBS KPKT KPN KE MOH NRES PETRA MOTAC KPDN MOT MOD 0 20 40 60 Source: GovTech Skills Survey of Malaysian Public Servants 2025. Source: GovTech Skills Survey of Malaysian Public Servants 2025. FIGURE 85 FIGURE 86 Retaining public servants with advanced or Performance management practices recognize the specialized digital skills is a pressing issue across role of digital skills ministries and service schemes There is more turnover among staff with advanced/specialized How digital skills in uence the results of your performance digital skills, Percentage reporting “Yes” evaluation, Percentage 80 73 Performance not formally evaluated 4 70 Average: 66% over the last 12 months 59 60 No impact 9 50 40 Slight to moderate positive 36 30 Signi cant positive impact 32 20 10 Essential for positive evaluation 19 0 MOFA MOSTI MOF MOHR KPWKM MAFS KE MOH MOW MECD MOTAC KKDW PMD MPIC PETRA KPKT KPN MOT MOHE MOE MINDEF MOC NRES MOD KBS KPDN MITI KDN 0 20 40 Source: GovTech Skills Survey of Malaysian Public Servants 2025. Source: GovTech Skills Survey of Malaysian Public Servants 2025. 76 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Performance management systems are an the value of digital skills in the public service. However, important tool for building and sustaining a 13 percent of public servants say digital skills have no digitally capable public workforce. By linking digital impact on their performance evaluation, or that their skills to career advancement and appraisal outcomes, performance has not been evaluated over the last year. these systems can help motivate learning, recognize Likewise, 36 percent responded that digital skills only digital competencies, and reinforce their strategic have a slight to moderate impact on their performance value across government. In Malaysia, while digital evaluations (Figure 86). The influence of digital skills is skills are increasingly recognized in performance stronger in digital-intensive roles but lower across the appraisals, integration remains uneven. One-third of broader service, pointing to a need for more consistent public servants say digital skills significantly impact and systematic incorporation of digital competencies their evaluations and 19 percent consider them into performance management frameworks. essential for a positive appraisal (Figure 86), reflecting There is strong demand for digital upskilling, but uneven training uptake and skills gaps limit impact As Malaysia’s digital transformation accelerates, ministries report strong general training participation building internal capabilities through training is (averaging 69 percent), and international survey data essential. Most public servants—94 percent—demand suggest Malaysia’s rate is higher than in some countries upskilling through training to meet evolving digital but below leaders such as Estonia and Poland (Figure demands, over other strategies such as partnering 87). However, only about half of civil servants received with experts, investing in new technologies, or hiring digital-specific training in the past year, with wide external talent. This strong willingness to upskill variation across ministries (Figure 88). Some, like the presents a valuable opportunity—but also highlights Ministry of Foreign Affairs and the Ministry of Women, the importance of ensuring that training is high-quality, reported especially low rates, while digital-focused relevant, and consistently delivered across ministries agencies such as MOD and MDEC showed higher to build a digitally capable public service. Many uptake. FIGURE 87 FIGURE 88 Malaysia’s training participation is strong, with There exists wide variation in training uptake room to match top performers80 across ministries Training participation, Percentage Respondents that received any training and digital-speci c training in the last year, Percentage 100 90 90 86 83 80 80 73 74 74 69 70 70 60 60 50 50 43 40 40 40 37 29 30 30 20 20 10 10 0 0 Kosovo Romania Argentina Ethiopia Malaysia Philippines Pakistan Lithuania Poland Estonia MOFA MOH KPWKM PETRA KPDN MINDEF MOTAC MAFS MOF KPKT NRES PMD KE MOT KKDW MOHR KBS MOE MOHE MOSTI MECD MITI KDN MPIC KKDW MOW KPN MOD Any training Digital skills training Source: GovTech Skills Survey of Malaysian Public Servants 2025. Source: GovTech Skills Survey of Malaysian Public Servants 2025. 80 The selection of comparator countries reflects the availability of comparable diagnostics from similar surveys undertaken by the World Bank around the world, which are suitable for benchmarking. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 77 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 89 FIGURE 90 Perceptions of public servants on the digital Gaps in training needs are more pronounced for training sufficiency is low across ministries advanced digital skills Respondents that agree to "I have received enough digital skills Gaps in demanded and received training, Percentage training to effectively carry out my tasks", Percentage 60 Administrative processes 18 27 Digital ethics 16 24 50 Citizen or user experience 9 15 43 Laws and regulations relevant 12 27 40 Awareness in cybersecurity 16 27 Use of online collaborative tools 41 41 Average: 30% 30 Generative arti cial intelligence 52 71 Data visualization 22 61 20 18 Use of statistical/data analysis 34 71 Computer systems and programming 9 19 10 Use of IT systems and software 42 49 Use of equipment and hardware 21 30 0 0 20 40 60 80 KPWKM MINDEF MOTAC MOHR PETRA NRES KE MOH MOSTI MOF MOFA MOC MAFS MECD KPDN MPIC MOW MOT KBS KDN KPKT PMD KPN MOD MITI KKDW MOE MOHE Received Demand Source: GovTech Skills Survey of Malaysian Public Servants 2025. Source: GovTech Skills Survey of Malaysian Public Servants 2025. However, staff perceptions of their own preparedness exposure, staff may struggle with new technologies reveal persistent gaps in digital skills training across and managers may underuse available data, making the Malaysian public service. Fewer than 30 percent of foundational training in equipment and basic analytics respondents felt they had received sufficient training crucial to sustaining digital transformation. to perform their roles effectively, with only a handful of ministries reporting higher levels of confidence (Figure How training needs are identified and how 89). This highlights the need for a more consistent participation barriers are managed significantly and coordinated approach to training—one that affect the effectiveness of digital skills equips staff across all ministries, not just those with a development. Survey data shows that responsibility for digital mandate, with the foundational competencies identifying training needs is fragmented—mostly led required to navigate and apply digital tools in their by department heads (33 percent) and HR (27 percent), daily work. In addition to these foundational gaps, while only 8 percent involves direct supervisors, who more advanced or emerging digital skill areas remain are best positioned to assess daily capacity gaps. significantly under-served. While 71 percent of public Staff also face barriers to training access, including servants identified a need for training in generative AI competitive selection (45 percent), time constraints (39 and statistical analysis, only 52 percent and 34 percent percent), and limited availability or perceived relevance respectively had received such training (Figure 90). of programs. These findings suggest the need for Similarly, although 61 percent cited a need for data a more coordinated approach to ensure training is visualization skills, just 22 percent had been trained. accessible, targeted, and aligned with actual workforce These mismatches point to a broader challenge: while needs. upskilling is a priority, current training offerings are not yet fully aligned with the evolving demands of a Malaysia has a wide network of public service modern, tech-enabled public sector. training institutions—over 340 in total—but coordination across them is limited. This affects Foundational digital training across Malaysia’s the consistency and reach of digital skills programs. public service remains uneven, especially in areas The McKinsey Digital Government Benchmarking essential for effective system use. While 69 percent Report (2023) highlighted that governments with more of public servants received some form of digital centralized and coordinated training strategies tend training in the past year, only 21 percent were trained to make faster progress on digital transformation. on IT equipment and 42 percent on systems and Without better alignment, Malaysia risks underutilizing software. These gaps reflect broader global trends, its training infrastructure and falling short of its digital where limited hands-on training can hinder the use ambitions. of digital tools and data systems. Without practical 78 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity BOX 6 AI for Malaysian Public Servants As AI tools become increasingly embedded in government operations, training systems will need to evolve to build public servants’ readiness and confidence in using these technologies effectively. The survey shows that uptake is already significant: nearly half of respondents reported using AI tools at least once a week, and one in five reported daily use. Usage is particularly high in ministries such as the Ministry of Digital, Ministry of Higher Education, and Ministry of Investment, Trade and Industry, suggesting early pockets of innovation (Figure 91). FIGURE 91 FIGURE 92 Frequency of AI usage across ministries is Public servants report the need for more training promising to prepare for AI Frequency of use of AI tools (Percentage of respondents who Percentage of respondents who replied "somewhat prepared" answered "at least once a week") and "need training" to the question "How prepared do you feel to work with AI?" 100 100 90 90 80 78 80 70 68 70 Average: 63% 60 Average: 54% 60 53 50 50 42 40 40 30 30 20 20 10 10 0 0 KPDN KPWKM KDN KPKT MOHR PMD MOHE KPN MOW MINDEF MOFA MOE KBS MITI MOF MECD MOT MOH MOC KKDW MAFS MOD MPIC PETRA MOTAC NRES MOSTI KE KPWKM MOF MOC MOHR PMD MECD MINDEF KPDN KPKT MOW MOFA MAFS PETRA MOT KDN MOTAC KBS NRES KPN MPIC MOH MOE KKDW MOSTI KE MOHE MITI MOD Source: GovTech Skills Survey of Malaysian Public Servants 2025. Source: GovTech Skills Survey of Malaysian Public Servants 2025. Importantly, AI tools are already contributing to efficiency gains. Civil servants estimate that they save more than 2.5 hours per day on average in ministries with high AI adoption. These gains, however, are not evenly distributed. In ministries where AI use is lower, civil servants also report fewer productivity benefits, underscoring the need to scale training efforts. AI adoption in the public sector depends on closing training gaps to ensure it augments, not replaces, human capacity. While most civil servants see AI as an opportunity, over half say it brings both benefits and risks, and a third believe it will empower them, while many still feel unprepared. Across ministries, nearly two-thirds report needing additional training to work effectively with AI (Figure 92). To fully harness the potential of these tools, training systems must proactively address this readiness gap by integrating AI into foundational and specialized skills programs. Doing so will help ensure AI augments, rather than bypasses, human capacity in the public service. Source: GovTech Skills Survey of Malaysian Public Servants 2025. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 79 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Growing digital skills must be matched with stronger leadership and a change-ready culture to deliver sustained productivity gains Organizational culture and management practices are not only critical for digital adoption but also for driving public sector productivity. International Survey data show that evidence, including the OECD’s Survey of Adult Skills (2016), shows that high-performing work practices— ministries more open to such as teamwor k, mentoring, and ef fec tive digital tools tend to have incentives—often have a greater impact on workplace higher training participation, performance than technical skills alone. Malaysia’s own survey results echo this: while insufficient training while those with greater (61 percent) and skills gaps (54 percent) are the most resistance often underinvest cited barriers, cultural and managerial constraints in capacity-building. such as staff resistance (32 percent), management resistance (16 percent), and lack of enforcement (38 percent) also weigh heavily (Figure 93). This challenge of management resistance is more pronounced in A productive public service requires not just certain ministries. As Figure 94 shows, the share of technical skills but a workplace culture that civil servants citing management as a key constraint embraces innovation. Survey data show that ministries ranges from just 10 percent in ministries such as Youth more open to digital tools tend to have higher training and Sport, Education, and Communications, to over participation (Figure 95), while those with greater 30 percent in Economy, Foreign Affairs, and Domestic resistance often underinvest in capacity-building Trade. This variation suggests that while some agencies (Figure 96). Although the relationship is not necessarily have leadership open to digital innovation, others face causal, a change-ready culture clearly supports more entrenched barriers that risk slowing or fragmenting consistent skills development. Without it, ministries risk reform. A leadership mindset and organizational culture falling into a cycle where a low openness to change are as essential as technical capability for sustaining limits training, which in turn constrains productivity productivity gains from digital transformation. improvements from digital investments. FIGURE 93 FIGURE 94 Public servants report the need for better Variation in ministries citing “management is not guidance and leadership for improved receptive” as a key constraint collaboration Main constraints to implementing new digital practices, Share of civil servants citing management as a key constraint to Percentage implementing new digital practices, Percentage 40 Insuf cient training 60 35 34 Staff lack the right skillset 54 30 Limited focus on business process 46 25 Too many administrative steps 37 20 Average: 16% New practices are not enforced 37 15 10 Staff are not receptive 32 10 Requires senior authorization 27 5 0 Management is not receptive 16 MOE KBS MOC MPIC KDN KKDW NRES KPKT MOHR PMD KPWKM MAFS KPN MOHE MOD MITI MOSTI PETRA MOF MECD MOT MOW MOTAC MOH KPDN MINDEF MOFA KE 0 25 50 75 Source: GovTech Skills Survey of Malaysian Public Servants 2025. Source: GovTech Skills Survey of Malaysian Public Servants 2025. 80 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 95 FIGURE 96 Digital training tends to be lower in ministries Staff in ministries with lower staff receptiveness to where management is less receptive to new new tools tend to receive less digital skills training technologies 80 80 70 70 Received training on digital skills Received training on digital skills 60 60 50 50 40 40 30 30 20 10 20 0 10 0 10 20 30 40 10 20 30 40 Management is not receptive to new tools Staff are not receptive to new tools Source: GovTech Skills Survey of Malaysian Public Servants 2025. Note: This correlation is at the ministry level, and each dot represents a ministry, and the correlation is statistically significant. Strong leadership is therefore pivotal for To fully realize productivity gains from digital aligning digital transformation with productivity transformation, leadership capabilities must be outcomes. Transformational leaders set clear goals, strengthened. Effective managers require structured, ensure processes match technological needs, and ongoing training to set strategic priorities, align teams, foster accountability—conditions that enable staff to and manage performance. International peers such as work more efficiently and deliver better services. By Ireland and Canada provide comprehensive, targeted linking innovation to day-to-day tasks, leaders can leadership development, but in Malaysia, participation reduce resistance and accelerate adoption. However, remains low—only 55 percent of top management and Malaysian survey data point to uneven leadership 39 percent of Grade 15 officers received training in the performance: over one-third of respondents reported past year, compared to a range of 68 to 71 percent for inconsistent enforcement of digital practices, while more junior grades (Grades 9 to 14). Existing programs others cite delays due to senior-level approvals, and are often too broad, infrequent, or time-consuming limited openness to change, creating productivity gaps for senior officials, limiting uptake. Without more across ministries (see Figure 93). accessible and focused leadership training, the skills needed to translate Malaysia’s digital investments into Leadership also directly influences talent pipelines, measurable productivity improvements may remain which are central to sustaining productivity in a underdeveloped. digital era. Nearly one-quarter of respondents cited weak management support as a barrier to recruiting digitally skilled staff, alongside unclear competency frameworks and limited career pathways (see Figure 84 above). Without strong leadership to champion talent development and signal long-term priorities, Malaysia risks losing scarce expertise in high-demand areas like data science, cybersecurity, and digital service design—skills that can significantly boost efficiency and service delivery quality. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 81 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Ultimately, digital transformation offers an opportunity to fundamentally reshape interactions within and with government User-centric service delivery is at the core of the FIGURE 97 World Bank’s GovTech approach and is increasingly Malaysia has expanded online services nationwide, embraced by governments aiming to modernize with digitalization stronger at federal and local public services. This model shifts the focus from levels, and weaker at the state level bureaucratic processes to the needs, expectations, Percentage of end-to-end online services by Government level and experiences of users. For Malaysia, digital in Malaysia transformation presents an opportunity not only to 100 88.71 improve efficiency but also to fundamentally enhance 90 85.1 80 how citizens interact with government, ultimately 70 driving private sector growth and the creation of high- 60 58.62 quality jobs. 50 40 30 Malaysia has made substantial strides in delivering 20 user-centric services across Government-to- 10 Citizen (G2C), Government-to-Business (G2B), 0 and G2G channels, underpinned by both physical Federal Government State Government Local Authorities one-stop service models and a growing portfolio Source: Jabatan Digital Negara, 2025. of digital platforms. Malaysia has made substantial progress in digitalizing public services, with nearly 72 percent of over 43,000 services now available end-to- Malaysia is also moving toward more participatory end online. Federal-level digitalization is strongest at service delivery models, where citizens are involved 89 percent, compared to 59 percent at the state level in co-designing digital platforms. Globally, this shift and 85 percent at the local level (Figure 97). While has improved access, reduced administrative burdens, these achievements provide a strong foundation, and strengthened trust in government. However, like many remaining services are more complex and many countries, Malaysia still has limited mechanisms require cross-agency and cross-level coordination. The for user engagement in ser vice development. next phase of transformation must prioritize service Embedding feedback loops and co-creation practices integration and user-centered design to ensure digital will be critical to building responsive digital platforms platforms are accessible, intuitive, and inclusive. that meet real-world needs. Malaysia’s leading G2C platforms outperform peers, though gaps in user-centered design remain Importantly, Malaysia has shown solid progress in convenience and integration. In addition, the MyGov developing and implementing key digital platforms Malaysia mobile app was developed and launched to support public service delivery. The country has in August 2025 as a “super app” that aims to host fully operationalized critical e-service portals, including 34 different government service apps. However, tax services, e-payment systems, and job portals— while platforms like MyTAX and MyOnline Passport often surpassing both ASEAN and OECD averages receive high user satisfaction ratings, others—such as in e-service delivery (Figure 98). The Inland Revenue MyDigital ID and the open data portal—reflect lower Board’s introduction of pre-filled tax fields and the ratings, highlighting opportunities for improvement broader rollout of one-stop Urban Transformation through more user-centered design (Figure 99). Centres (UTCs) demonstrate Malaysia’s commitment to 82 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 98 FIGURE 99 Malaysia’s core e-service portals are fully Users report high satisfaction with services like operational and often outperform ASEAN and MyTAX and ePayslip, but platforms such as OECD averages MyDigital ID and the open data portal show room for improvement GTMI Score Satisfaction levels with digital systems (Percentage responding "Satis ed/Very satis ed") 1 ePayslip 82 Tax Service Portal 0.93 0.92 MyTAX (e-Filing) 80 Social Insurance / 0.83 0.84 HRMIS 2.0 70 Pension Portal 0.58 0.81 mySikap 60 Public Service Portal 0.85 0.64 MyGovUC 58 1 Job Portal 0.95 MyOnline Passport 57 0.75 1 EPSA (E-Pembelajaran Sektor Awam) 54 E-payment Services 0.92 0.97 MyGovernment Portal 47 E-Filing for Tax 0.85 0.93 MyDigital ID 44 and Customs 0.83 data.gov.my portal 44 1 Customs Service Portal 0.87 0.9 DDMS 2.0 42 0 0.2 0.4 0.6 0.8 1 0 20 40 60 80 100 Malaysia OECD ASEAN Source: GTMI 2022, World Bank. Source: GovTech Skills Survey of Malaysian Public Servants 2025. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 83 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Strong G2G systems support coordinated governance, but limited interoperability and transparency constrain their full potential Malaysia has developed a suite of modern G2G PIMS scores highly on the GovTech Maturity Index (0.79 digital systems that provide a strong foundation compared to the OECD average of 0.5), it operates for coordinated governance and more data- largely in isolation without interoperability, even via driven decision-making. Core financial management separate interfaces. It also does not publicly disclose platforms such as the Integrated Government Financial project databases or results, unlike a growing number and Management Accounting System (iGFMAS), of OECD and ASEAN countries. Improving integration launched in 2020, enable faster and more reliable b et ween plat for ms, ex panding dat a - s har ing data exchange in public financial management. The capabilities, and enhancing public transparency would Treasury Single Account (TSA), integrated with the allow Malaysia to fully leverage its G2G architecture Central Bank, streamlines cash management and for more coordinated, efficient, and accountable automates payments across ministries and agencies. governance. Complementing these is the Public Investment Management System (PIMS), which centralizes project appraisal and management, positioning Malaysia Improving integration ahead of most ASEAN peers and many OECD countries between platforms, in institutionalized investment planning (Figure 100). Specialized sectoral systems such as the TMIS and expanding data-sharing Customs Management Information System (CMIS) capabilities, and enhancing also play a vital role, supporting revenue collection, public transparency compliance monitoring, trade facilitation, and inter- agency data exchange. would allow Malaysia to fully leverage its G2G Despite these advances, key challenges remain in architecture for more ensuring these G2G platforms are fully aligned with core business processes, work seamlessly together, coordinated, efficient, and and deliver greater transparency. For example, while accountable governance. FIGURE 100 Malaysia has built a strong suite of G2G digital systems, outperforming ASEAN peers and often matching OECD standards in areas like tax, customs, and debt management GTMI Score 1 1 0.99 1 0.9 0.88 0.9 0.92 0.9 0.9 0.87 0.88 0.83 0.84 0.85 0.84 0.82 0.8 0.81 0.8 0.77 0.79 0.77 0.8 0.74 0.7 0.68 0.68 0.6 0.6 0.5 0.5 0.45 0.4 0.3 0.2 0.1 0 Treasury Tax Management Social Public Investment Payroll Human Resource Financial Debt Customs Single Information Insurance Management System Management Management Management Management Account System System System Information Information System Information System System System Malaysia OECD ASEAN Source: GTMI 2022, World Bank. 84 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Malaysia’s core financial and investment systems budgeting processes, limiting the ability to consolidate face limitations that reduce their ability to support data across government tiers. Transparency is also fully integrated and transparent governance. The constrained, as neither the iGFMAS nor the Treasury iGFMAS, despite modernizing financial management, Single Account (TSA) publicly discloses governance scores below OECD and ASEAN averages on the information on compliance mechanisms, security GovTech Maturity Index and lacks several capabilities protocols, or audit trails. Similarly, the PIMS, while found in leading systems (Figure 101). It does not track functional, operates in isolation without interoperability expenditures against strategic objectives such as the and does not publish its project database or results Sustainable Development Goals (SDGs) and cannot (Figure 102). Overall, while Malaysia’s systems have capture non-financial key performance indicators (KPIs) modernized discrete functions, their limited integration for programs and projects. The absence of a unified with core planning, budgeting, and monitoring budget classification or chart of accounts constrains processes suggests they are not yet fully embedded in alignment between financial systems and core the workflows they are intended to support (Figure 102). FIGURE 101 Malaysia’s financial systems are modern but fall short on linking spending to outcomes, limiting transparency and alignment with international standards Captures expenses linked to SDGs/Other strategic goals Captures non- nancial data (KPIs) on programs/projects GTMI Score GTMI Score OECD 38.2% 61.8% OECD 52.9% 47.1% ASEAN 40% 60% ASEAN 40% 60% 0 20 40 60 80 100 0 20 40 60 80 100 No Yes No Yes Malaysia: No Malaysia: No Uni ed budget classi cation/chart of accounts Governance of FMIS operations (e.g., compliance, security, audit trails) GTMI Score GTMI Score OECD 18% 82% OECD 32.4% 23.5% 44.1% ASEAN 30% 70% ASEAN 60% 30% 10% 0 20 40 60 80 100 0 20 40 60 80 100 No Yes No Yes (internal, not published) Yes (public, published) Malaysia: No Malaysia: No Source: GTMI 2022, World Bank. FIGURE 102 Malaysia’s PIMS outperforms OECD and ASEAN averages, but gaps remain in public disclosure and system integration Publishing of PIMS project database and results Does PIMS exchange data with other systems? GTMI Score GTMI Score OECD 73.5% 26.5% OECD 67.6% 32.4% ASEAN 80% 20% ASEAN 60% 40% 0 20 40 60 80 100 0 20 40 60 80 100 No Yes No Yes Malaysia: No Malaysia: No Source: GTMI 2022, World Bank. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 85 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity G2B services are widely adopted, though uptake by SMEs and in less-connected regions is uneven Malaysia’s digital government-to-business (G2B) (Figure 104). Medium and large firms in particular make services have also expanded significantly in recent extensive use of e-payments, reflecting the strength of years, offering firms faster, more predictable, Malaysia’s digital infrastructure in facilitating business- and less burdensome ways to access information to-government transactions. and to meet regulatory and payment obligations. Between 2015 and 2022, the DOSM Economic Census Despite strong overall adoption, gaps remain in found that the share of establishments using the both reach and consistency. Small firms are less internet to interact with or obtain information from likely to use digital channels—only 81 percent government agencies rose sharply—from about 16 file and 86 percent pay taxes electronically— percent to over 63 percent—with similar gains among suggesting barriers such as cost, accessibility, MSMEs. Growth was seen across all sectors, led or digital readiness. Regional disparities are also by the services sector (up ~48 percentage points), significant: in the Eastern and Northern regions, and particularly in transportation and storage. Electronic especially in Sabah and Sarawak, roughly one in four tax administration is well established—over 85 percent firms still do not use e-filing or e-payment for taxes of firms report filing taxes electronically and more than (Figure 105). Similarly, while e-payment systems are 90 percent make tax payments online (Figure 103). widely available, smaller firms remain more reliant on Adoption is nearly universal among large firms, and cash for both making and receiving payments (Figure usage is high in most regions, with over 90 percent 106). These gaps limit the efficiency, transparency, and of firms in the Central and Southern regions filing and inclusiveness of Malaysia’s G2B service delivery and paying taxes electronically. The country also performs highlight the need for targeted measures to increase strongly in the availability and use of electronic payment uptake among smaller enterprises and underserved systems for broader transactions with government, regions. comparing well with regional and international peers FIGURE 103 FIGURE 104 Nearly all firms in Malaysia file and pay taxes Malaysia performs strongly in the use of electronic electronically—well above regional peers, and payments for government transactions, comparing close to OECD leaders well with both regional and international peers Firms ling and paying taxesPercentage Average proportion of payments made electronically, Percentage 98 100 98 100 100 79 80 80 75 68 69 63 60 60 40 40 34 20 17 20 0 0 Canada China Indonesia Korea, Rep. Malaysia New Zealand Philippines Singapore United Kingdom Viet Nam Indonesia Philippines Malaysia Korea, Rep. Canada New Zealand China Viet Nam Singapore United Kingdom Firms ling taxes electronically Firms paying taxes electronically Source: World Bank Enterprise Surveys, 2024. Source: World Bank Enterprise Surveys, 2024. 86 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity FIGURE 105 FIGURE 106 While overall adoption of e-filing and e-payments E-payments are widely used, but small firms remain is high, significant regional gaps remain more reliant on cash compared to medium and large firms 100 96 95 100 93 91 91 90 90 88 88 85 85 82 80 76 78 76 80 74 73 70 70 67 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Central Eastern Northern Sabah and Southern Small (5-19) Medium (20-99) Large (100+) Sarawak Percent of rms ling taxes electronically Average proportion of sales paid by customers electronically Percent of rms paying taxes electronically Average proportion of payments made electronically Source: World Bank Enterprise Surveys, 2024. Source: World Bank Enterprise Surveys, 2024. While Malaysia’s digital services burden, minimize errors, and deliver a better overall experience for users. are expanding rapidly, cross- cutting gaps in integration, design, FIGURE 107 and coordination limit their ability Malaysia’s e-filing system for tax and customs is functional, but there is room for improvement to deliver seamless, equitable, and through greater streamlining and automation high-impact outcomes across G2C, Interconnectivity with business information systems G2G and G2C services GTMI Score OECD 29% 71% Nonetheless, there remain significant cross- c utting opp or tunitie s for en hancement , ASEAN 40% 60% particularly in terms of functionality, accessibility, and user-centered design. For example, although 0 20 40 60 80 100 digital platforms for social insurance and pensions No Yes exist, the types of services that are available online Malaysia: No vary across providing agencies. Similarly, the Public Service Portal performs just below the OECD average Pre-populated returns in usability, comprehensiveness, and responsiveness. GTMI Score These gaps are echoed in Malaysia’s e-filing system for tax and customs, which, while functional and widely OECD 38% 62% used, lacks integration with business systems and advanced automation features. Unlike many OECD ASEAN 50% 50% and ASEAN peers, Malaysia does not yet support 0 20 40 60 80 100 the uploading of tax data from internal systems or consistently provide pre-filled tax returns (Figure 107). No Yes These examples underscore the need to move beyond Malaysia: No basic digitalization toward seamless, interoperable, and user-friendly platforms that reduce administrative Source: GTMI 2022, World Bank. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 87 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity BOX 7 Fragmentation of Social Protection in Malaysia Malaysia’s social protection framework comprises three pillars—social assistance, social insurance, and labor market interventions—implemented by different ministries and agencies. Within social assistance alone, 122 programs are run by 16 entities, each with its own objectives, targeting methods, and databases. This fragmentation creates overlaps, administrative inefficiencies, and navigation challenges for beneficiaries, ultimately diluting the adequacy of support for those most in need. While coverage is broad, with most B40 households receiving some assistance, leakage to higher-income groups remains significant, and benefit levels for the poorest fall well below global comparators. Better coordination and integration are needed to address these cross-cutting inefficiencies and strengthen service delivery. The forthcoming National Social Protection Policy presents an opportunity to align systems, consolidate overlapping programs, and improve targeting so that public resources deliver greater equity and impact. By reducing duplication and creating stronger linkages across pillars, Malaysia can enhance the effectiveness of its social protection system while improving the productivity of public spending in this critical sector. The way digital services are designed is just as processes, and accountability measures will be important as their functionality. International essential to creating a more citizen-centered digital comparisons show that many governments, including government. Malaysia, often fall short in actively involving citizens in the development of digital platforms for social Malaysia’s rapid expansion of digital public services insurance and pensions. While nearly half of OECD reflects strong momentum and institutional countries and 60 percent of ASEAN countries lack commitment, but reaping its full benefits would user engagement mechanisms (Figure 108), evidence require stronger coordination, standardization, suggests that greater participation leads to more and back-end integration to ensure consistency intuitive and responsive services. At the same time, and ease of use. Although the JDN has a mandate to there is growing potential to move beyond basic consolidate platforms and approve new developments, access and transform core platforms into tools that this oversight only applies to systems within its build transparency, trust, and user engagement. Key purview. Agencies can still build standalone platforms, features—such as publishing user satisfaction and risking duplication and inconsistent user experiences. service delivery metrics—are still missing in Malaysia’s Greater standardization, back-end integration, and digital ecosystem, despite being common in global shared infrastructure are needed to create a seamless benchmarks. Integrating feedback loops, co-creation and citizen-friendly digital ecosystem. FIGURE 108 There remain gaps in user engagement and transparency in platform design Citizen's involvement in the design of social insurance/pension Publishing of online service delivery performance/user experience portals GTMI Score GTMI Score OECD 47.1% 52.9% OECD 35.3% 5.9% 58.8% ASEAN 60% 40% ASEAN 70% 30% 0 20 40 60 80 100 0 20 40 60 80 100 No Yes No Yes (internal) Yes (public) Malaysia: No Malaysia: No Source: GTMI 2022, World Bank. 88 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Recommendations: Leveraging GovTech for smarter, more efficient government Malaysia is well placed to lead in GovTech-driven productivity, but success will depend on sustaining reforms across the 4Ps: Platforms, Policies, People, and Participation. 1 PLATFORMS Strong digital foundations unlock efficiency at scale Productivity gains hinge on robust digital will sustain momentum in adopting AI and emerging infrastructure that reduces duplication, enables technologies, ensuring Malaysia’s digital transformation integration , and lowers transaction costs. remains resilient and future-ready. Malaysia has already invested heavily in MyDigital ID, MyGovCloud, and the Malaysian Government Data While these platforms are strong, their value can Exchange (MyGDX), but the challenge now lies in only be realized through systematic monitoring leveraging these systems to deliver greater impact. and reporting. Current frameworks such as EA and MyDigital ID’s recently developed single sign-on cloud platforms (e.g., MyGovCloud, MyGDX) are framework was designed to build trust by addressing underutilized because their use, compliance, and data breach and identity theft concerns. The next impact are not tracked consistently. Introducing step is to ensure it strengthens interoperability and transparent reporting—similar to global best practices enhances the user experience across platforms. At the in cloud monitoring—would allow for evidence-based same time, reinforcing foundational enablers—such as decision-making, early identification of gaps, targeted data infrastructure, cybersecurity, and governance— investments, and more visible value creation. BOX 8 Strengthening EA Oversight in Canada Canada has significantly advanced the oversight of its EA and government platforms through centralized governance mechanisms. The Government of Canada’s (GC) Enterprise Architecture Framework, managed by the Treasury Board Secretariat, mandates that digital initiatives exceeding certain investment thresholds, involving emerging technologies, or diverging from public cloud deployment must be submitted to the Government of Canada Enterprise Architecture Review Board (EARB). This ensures alignment with the Target State Architecture across business, information, application, technology, and security domains—protecting strategic coherence and reuse of enterprise solutions across. Complementing this is the suite of GCTools—including GCconnex, GCPedia, GCcollab, and others—designed to foster collaboration, knowledge sharing, and innovation among over 160,000 federal public servants. GCTools serves as a policy-aligned GovTech platform, enabling transparent operation, shared communities of practice, and agile development of government-wide services. Canada’s experience shows how centralized governance can align digital initiatives with national strategies while ensuring reuse of shared solutions. Malaysia could adapt similar models to enforce coherence across platforms and strengthen whole-of-government digital infrastructure. Source: Government of Canada, 2022. MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 89 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Maximizing the value of digital infrastructure strengthen security, foster innovation, and enhance requires consistent adoption and seamless digital sovereignty. Finally, while MyGDX and the integration across government. Malaysia should Government Service Bus provide a solid base for therefore formalize open-source adoption. The current integration, practical interoperability gaps remain, advisory OSS policy has encouraged experimentation particularly between central and local governments. but left adoption uneven across agencies. A shift Embedding shared standards, incentives, and capacity- toward mandator y OSS use in targeted areas— building would reduce duplication, improve service supported by clear guidelines, IT team training, and efficiency, and support more integrated, citizen-centric technical assistance—could improve cost efficiency, services across sectors. Clear rules and accountable institutions turn 2 POLICIES technology into impact Digital reforms require more than technology— exercising matrix reporting over IT personnel in they depend on strong institutions and coherent the Scheme F service, and serving as a formal data regulations to turn tools into outcomes. The access negotiator under the Data Sharing Act— MOD should be positioned not only as the lead would enable JDN to drive change. It could also be on infrastructure and skills but also as a driver of tasked as the implementing body for the forthcoming economic transformation and productivity. This independent National Data Commission under MOD, means embedding digital targets in economic plans, which will safeguard data assets and foster responsible systematically tracking the productivity impacts of innovation. Empowering MOD and JDN in this way reforms, and explicitly linking GovTech initiatives to would strengthen compliance, cross-government growth and service delivery outcomes. To deliver integration, and accountability—ensuring Malaysia’s on these ambitions, JDN should be empowered digital policies translate into measurable productivity as a central implementing agency, moving beyond gains and a more coherent, future-ready digital state. its current advisor y role. Stronger levers—such Box 9 on Spain’s governance model illustrates the as consolidating ICT budgets across ministries, importance of whole-of-government coordination. A Complex, Multi-Faceted National, BOX 9 Regional and Local Whole-of-Government Governance Model Spain’s Ministry of Economic Affairs and Digital Transformation leads the design and execution of government policy on digital transformation. Within the Ministry, the Secretary of State for Digitalization and AI plays a central role in promoting the digital transformation of Spanish society as well as the modernization of public administration. An inter-ministerial body—the Central Administration Coordination Commission for ICT Strategy—brings together senior officials from all ministries to oversee the design and development of eGovernment and ICT policy, ensuring coherence across sectors. Complementing this, Ministerial Committees for Digital Government are responsible for advancing digital governance within their respective ministries and implementing their action plans for digital transformation. To ensure coordination across different levels of government, the Sectorial Commission of eGovernment serves as the technical cooperation body linking state, regional, and local authorities. These institutional arrangements reflect Spain’s strong emphasis on collaboration and whole-of- government alignment, which have been critical in sustaining momentum for digital reform. Source: World Bank, 2021. 90 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity BOX 10 Estonia’s X-Road: A Backbone for Seamless and Secure Data Exchange Estonia’s X-Road underpins its e-government by enabling secure, real-time data exchange between public agencies and private entities. Launched in 2003 with 10 participating institutions, the system now connects nearly 900, about 70 percent of which are government bodies. Its open, decentralized design lets institutions retain ownership of data while sharing it securely when needed, using digital authentication, encryption, and log monitoring to ensure trust. By law, agencies cannot request information already held in connected databases, reducing duplication and improving efficiency. This design shift has delivered significant productivity gains—saving an estimated 7 million workdays annually—by replacing physical transactions with digital interactions. The X-Road model illustrates how legal mandates, technical interoperability, and clear governance can together drive a truly integrated public sector data ecosystem. Source: World Bank (2016) 81 In addition, collaboration and user-centered design huge productivity gains, saving millions of workdays must be embedded in ministry digitalization annually. Malaysia’s Data Sharing Act should similarly plans. Joint project reviews, shared KPIs, and citizen be broadened to cover all levels of government and feedback loops would align reforms with user needs strengthened through common standards and once- while breaking down silos. To ensure consistency, only principles, emulating best practice countries such adoption mechanisms should also be used to as Singapore, whose Public Sector (Governance) Act operationalize whole-of-government ICR standards. 2018 moved government from secrecy-by-default to This means mandating compliance with shared ICT sharing-by-default. services, interoperability frameworks, and EA in ministry-level digital projects. At the same time, these Strengthening data governance and stewardship tools should be designed around core government should be a key focus of Malaysia’s GovTech reform business processes—such as planning, budgeting, agenda, by treating data as a strategic public asset. and monitoring—to ensure they are embedded in Beyond access, data should be managed to ensure its daily workflows rather than operating as stand-alone quality, timeliness, consistency, and completeness, systems. Both “hard” levers—such as pre-approvals for while embedding safeguards for protection and major ICT projects and mandatory design standards— integrity. This requires clear custodianship and and “soft” levers—such as awards, shared tools, and accountability arrangements across ministries. Good targeted training—can help drive adoption across practice models provide useful lessons: in Australia, ministries. Countries like Denmark and Estonia the Data Availability and Transparency Act (2022) demonstrate how digitalization pacts and “once-only” established clear purposes for data use, required principles can deliver seamless services, while models formal data sharing agreements, and embedded from Australia and Austria show the importance of privacy protections, while the Australian Government combining rules with incentives to sustain momentum. Data Governance Framework defined roles for data custodians and chief data officers to oversee quality Transparency and data sharing are equally critical. and lifecycle management. In the U.K., the Government Passing a Freedom of Information (FOI) law would Data Quality Framework sets out common standards institutionalize “open by default” practices, shifting for accuracy, timeliness, and continuous improvement Malaysia from secrecy to transparency and building across departments. Together, these models show how trust in digital services. Estonia’s X-Road system strong governance arrangements, with clear standards (Box 10) demonstrates how legal mandates, secure and oversight, can make data not just open, but interoperability, and governance can together deliver reliable, trusted, and reusable.82 81 https://www.worldbank.org/en/publication/wdr2016 82 https://www.finance.gov.au/government/public-data/public-data-policy/statutory-review-data-availability-and-transparency-act-2022; https:// www.finance.gov.au/government/public-data/public-data-policy/data-governance-framework; https://www.gov.uk/government/publications/the- government-data-quality-framework/the-government-data-quality-framework MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 91 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity A digitally skilled public service is the engine of 3 PEOPLE transformation Digital reforms cannot succeed without the right retaining skilled staff. This means clarifying career people to design, implement, and sustain them. pathways, modernizing work equipment, offering A digitally capable and motivated public service is hybrid arrangements, and recognizing skills alongside therefore the engine of transformation, ensuring competitive pay. By branding digital roles as mission- that Malaysia’s investments in platforms and policies driven and tied to high-impact national priorities, the translate into tangible productivity gains. This public sector can attract professionals motivated by requires strengthening recruitment and retention, purpose as well as compensation. Finally, broadening embedding digital competencies into performance entr y pathways through recruitment streams, systems, expanding training pathways, and fostering apprenticeships, and private sector secondments a leadership culture that champions innovation and would expand the pool of digital professionals, drawing adoption. inspiration from Germany, Singapore, and Estonia. France’s Entrepreneurs d’Intérêt Général fellowship First, recruitment and retention of digital talent (Box 11) illustrates how structured secondments can must be modernized. Today, ministries repor t inject cutting-edge skills while strengthening internal widespread difficulty in attracting and keeping staff capacity. with advanced digital skills, with turnover among specialists particularly high. Structured recruitment S e cond , d igita l comp ete nc i e s m u s t b e processes—combining interviews with scenario-based systematically embedded into performance assessments and digital competency tests—would management. A common digital competency help consistently evaluate skills across roles. Digital framework would provide a reference point for criteria should also be embedded into all recruitment, recruitment, training, and appraisals, ensuring including for non-ICT positions, so that every new consistency and clarity across ministries. Romania’s hire can support digital transformation. At the same General Digital Competency Framework (Box 12) time, Malaysia must improve its value proposition for shows how systematically defining skills can accelerate BOX 11 Digital Secondments into the French Government To address digital capability gaps in the civil service, France launched the Entrepreneurs d’Intérêt Général (EIG) program in 2017, bringing external digital experts into central government ministries on 10-month secondments to work alongside public servants on defined digital challenges. By 2022, over 170 fellows had been deployed across six cohorts, contributing to projects in data science, open data, AI, cybersecurity, and user-centred service design. Hired as short-term civil servants rather than contractors, fellows are embedded within ministries, typically in teams of 2–3 with complementary profiles, working alongside civil servant mentors on projects such as digitalizing environmental regulation or improving access to health data. The program delivers both direct and systemic benefits. Most teams produce working prototypes that are adopted or scaled, while public servants involved report stronger digital awareness, familiarity with agile and user-centric methods, and greater openness to innovation. Over 90 percent of participating ministries say projects met or exceeded expectations. Beyond project delivery, EIG fosters skills transfer, builds cross-ministerial networks, and seeds a culture of digital experimentation. Many fellows remain in government or civic tech roles, strengthening long-term capacity. Coordinated by the Interministerial Directorate for Digital Affairs (DINUM), the initiative demonstrates how structured fellowships can bring in advanced digital talent while building lasting internal capability. Source: Fit for the Future: Addressing the Digital Skills Gap in Public Administration. Washington, DC: World Bank. Forthcoming. 92 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity BOX 12 Developing a Digital Competency Framework in Romania Romania offers a valuable example of systematically integrating digital skills into public service workforce planning. With World Bank support through the EU’s Technical Support Instrument (TSI), the government is developing a General Digital Competency Framework for Public Servants to strengthen human resource management and accelerate digitalization. The initiative addresses gaps in Romania’s current HRM system—where digital skills are often limited to basic Microsoft Office proficiency—by defining and embedding competencies more consistently across roles. Using a multi- layered approach, it combines policy analysis, job reviews, consultations, international benchmarking, and foresight methods to anticipate future digital roles. Key features include AI-based competency mapping and focus groups, alignment with frameworks such as DigComp and UNESCO, identification of skills by role type, and recommendations to integrate digital skills into recruitment, training, and performance management. Coordinated by three institutions, the effort emphasizes collaboration, capacity-building, and role- specific development. Next steps include finalizing the framework, embedding it into HRM and legal systems, and launching a digital training and certification platform for on-demand upskilling. For Malaysia, Romania’s experience illustrates the value of a structured, forward-looking approach to digital skills planning—rooted in national priorities and aligned with international best practice. Source: Fit for the Future: Addressing the Digital Skills Gap in Public Administration. Washington, DC: World Bank. Forthcoming. digital transformation by embedding them into HR To maximize impact, training needs assessment systems. For Malaysia, tying competencies to career should also be coordinated across government. progression, recognition, and training opportunities Skills gaps should be identified consistently through would incentivize uptake. Real-time workforce data performance reviews, surveys, and workforce analytics, from training records, assessments, and project while coordination among Malaysia’s 343 public outcomes could then be used to match talent to service training institutions would help ensure that opportunities, identify emerging leaders, and create delivery is consistent and demand-driven. Finally, internal talent pools for cross-ministry rotations— to professionalize careers, Malaysia could transform helping make per formance management more the current ICT scheme into a structured track with forward-looking and developmental. clear stages, mobility across ministries, and targeted training milestones, while also incorporating rotational Third, training pathways need to move from ad assignments and peer networks to foster professional hoc to structured and continuous. Foundational identity and expertise. This approach would be similar skills—such as system navigation, data entry, and to the U.K.’s DDaT Capability Framework (Box 13), software use—should be provided across all ministries, which formalized career paths for digital professionals regardless of mandate, to build a common baseline. in government. Beyond this, progressive training tiers should expand intermediate capabilities (like data analysis, Finally, leadership and culture must drive adoption. visualization, and digital service design) and advanced Managers should be empowered as digital change expertise (in AI, cybersecurity, and cloud engineering). agents, equipped with the training, tools, and peer Training must also be delivered in hybrid formats networks to reduce resistance and embed innovation that combine online modules, hands-on sessions, in their teams. Senior leaders must also be held workplace mentoring, and rotations, following models accountable for digital reforms through performance- like Canada’s Digital Academy and Singapore’s linked outcomes, supported by modular, time-efficient Infocomm Media Development Authority (IMDA). training focused on change management and digital MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 93 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity innovation. Singapore’s Core Competency Framework use of new tools, and embed digital adoption into for Digital Leadership (Box 14) demonstrates how institutional values. By sustaining such a culture, digital leadership expec tations can be systematized, transformation can move from isolated projects to emphasizing resilience, adaptability, and inclusive system-wide practices, ensuring reforms translate into team building. Over time, Malaysia must cultivate a long-term productivity gains and more citizen-centric culture where Members of Administration and senior services. officials visibly champion digital initiatives, model the BOX 13 Professionalizing Digital Careers in the U.K. Public Sector The U.K. government has taken a structured approach to strengthening its digital workforce through the Digital, Data and Technology (DDaT) Profession Capability Framework . Developed by the Government Digital Service (GDS), the framework clearly sets out the skills, knowledge, and behaviors required for a wide range of digital roles — from software engineering and data science to user research and IT operations — and provides tailored learning pathways for different career stages. By defining consistent role profiles, competency levels, and progression routes, the framework has created a formal career track for digital professionals within the public service. This professionalization not only improves recruitment and retention by making public sector digital roles more attractive and competitive but also enables workforce planning by helping managers identify skills gaps, target training investments, and forecast future capability needs (Government Digital Service, 2019; Government Digital Service, n.d.). For Malaysia, adopting a similar framework could help professionalize digital roles in the civil service, making them more attractive while enabling strategic workforce planning and targeted skills development. Source: Government Digital Service, 2019; Government Digital Service, 2022; Government Digital Service, n.d. BOX 14 Singapore’s Core Competency Framework for Digital Leadership Singapore has developed a robust Core Competency Framework (CCF) to empower public sector leaders with the skills required for successful digital transformation. This framework emphasizes continuous learning, emotional intelligence, and receptive leadership that actively solicits input from all levels of organizations, ensuring adaptability and innovation in a rapidly changing environment. The framework supports competency-driven growth by establishing a shared language for the roles and behaviors expected of public service officers and leaders, and by promoting competencies such as resilience, agility, and inclusive team building. It also features structured tools like a 360-degree feedback mechanism, followed by tailored coaching, to reinforce self-awareness and leadership effectiveness. Source: Public Service Division, n.d.; Civil Service College, 2025. 94 MALAYSIA ECONOMIC MONITOR | OCTOBER 2025 PART TWO - From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity Citizen- and business-centered services drive real 4 PARTICIPATION productivity gains Ultimately, GovTech must improve how people that citizens and businesses can access services interact with government by reducing time, seamlessly without navigating multiple logins. cost, and complexity, while enabling private sector growth and better jobs. Malaysia has made Closing adoption gaps is equally important. SMEs progress in expanding digital services, but the next and lagging regions, particularly Sabah, Sarawak, and phase must focus on integration, accessibility, and less-connected states, can be supported through inclusivity. All new services should be designed with infrastructure and capacity upgrades. An SME Digital users through co-creation workshops, usability testing, Compliance Program can also be rolled out, with and annual satisfaction surveys, with results published tailored training, simplified mobile apps, and digital transparently. Sweden’s pension system redesign (Box incentives to reach at least 95 percent SME e-filing and 15) shows how iterative user feedback and participatory e-payment usage by 2027. design can dramatically improve trust, accessibility, and uptake. Malaysia is already working towards consolidating services under a single governance framework, Malaysia should also upgrade the functionality and these efforts must be enhanced and fully of its core platforms to meet global benchmarks. institutionalized to realize their potential. JDN Pension and insurance portals must enable full end- should be mandated to review, approve, and integrate to-end transactions by 2026, while tax services could new services into the Public Service Portal, applying be enhanced through pre-populated e-filing based on consistent design and integration standards so that secure data exchange, modeled after Estonia. By 2027, by 2026 at least 90 percent of services meet usability interoperability between core systems (iGFMAS, TMIS, and accessibility benchmarks. This builds on the 13th CMIS, and PIMS) through the Government Service Bus MP’s flagship initiative to establish a single government should be achieved to enable real-time cross-agency service window via the MyGov app and malaysia.gov.my data sharing. At the same time, adopting standard portal, which targets 95 percent of federal services digital ID authentication and single sign-on across online by 2030 and aspires to position Malaysia among portals will provide a unified access point, reducing the UN’s top 20 for e-Government Development. complexity for users, improving security, and ensuring BOX 15 Sweden’s Orange Envelope and minPensio - A Citizen-Centric Digital Pension Service An example of citizen-centric GovTech is Sweden’s integrated pension communication system— anchored by the annual Orange Envelope and the digital platform minPension. Each year, the Swedish Pensions Agency mails the Orange Envelope summarizing accrued public pension rights, while since 2004 the online portal minPension has aggregated both public and occupational pension data to give individuals a holistic, personalized view of their retirement entitlements. Both channels are continuously improved based on user feedback : the Orange Envelope was simplified from ten pages to four through annual surveys, while minPension was developed via co- creation workshops and usability testing with government and pension providers. Citizens can also use interactive tools to model how factors like retirement age or earnings affect outcomes—and today, more than half of working-age Swedes rely on the portal as their main pension information source. This user-driven approach has increased transparency, strengthened trust in the pension system, and empowered individuals to make informed decisions for long-term financial security. 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