Malaysia Country Risk Report November 2026

A country’s risk rating is based on four areas: political, economic, commercial and technological risk. Each area is scored from 1 to 10, where 1 is the highest risk and 10 is the lowest.

Political Risk: November Update

Stable at 8

Prime Minister Anwar Ibrahim is reportedly considering delaying national elections until the second half of 2027, due to state poll setbacks and infighting with a key coalition partner. Just a few months back, Anwar was reportedly considering holding an election this year to take advantage of favourable trends, including a split opposition. The next general election is not due until February 2028. Anwar was also reportedly concerned that rising inflation could undermine the government’s popularity. 

Two state election setbacks suggest that the Pakatan Harapan coalition’s popularity is already sinking. Anwar’s People’s Justice Party, known as PKR, won just four of the 49 seats it contested in the state elections in Sabah, Johor and Negeri Sembilan since November.

The Democratic Action Party, the biggest component of the bloc, also lost ground, including in the state of Negeri Sembilan, where Pakatan Harapan was ousted after two terms in power.

Anwar faces the prospect that the two largest Malay-Muslim parties – his national governing partner United Malays National Organisation, and the opposition Pan-Malaysian Islamic Party (PAS) – may join forces. They could unite to fight the state poll in Malacca, which is expected in the coming months.

Anwar’s party has also been weakened by the departure of prominent figures, including former economy minister Rafizi Ramli, who has since launched Parti Bersama Malaysia. The new party aims to court voters disillusioned by Anwar’s unmet reform promises and are uneasy with the conservative, race- and religion-based politics pursued by some opposition politicians.

Political Risk - Context

Malaysia consists of two regions, peninsular Malaysia and the states of Sabah and Sarawak, which lie on the island of Borneo. It is a multi-ethnic, multi-religious federation encompassing a majority ethnic Malay population in most of its states and an economically powerful Chinese community. Ethnic Indians are the next largest group in the country. Since 1971 Malays have benefited from positive discrimination in business, education and the civil service.

Malaysia appears to have finally entered calmer political waters after experiencing significant political turbulence since 2018. It is also on course to transition from entrenched dominant-party rule to a competitive, multi-party democracy. The United Malays National Organisation (UMNO) dominated the political environment from independence in 1957 until 2018, when it was ejected from office amid corruption scandals. Veteran politician Anwar Ibrahim became the country’s fifth prime minister in less than five years in November 2022.

The rise of the opposition Islamist Parti Islam Se-Malaysia (PAS) poses the biggest concern to investors. At the last election in 2022, PAS won the most seats – 43 in the 222-seat parliament. Anwar’s PKR secured 31 seats and he became prime minister only after forming a coalition with multiple parties – the Democratic Action Party (DAP), Barisan Nasional (BN), Gabungan Rakyat Sabah (GRS), Gabungan Parti Sarawak (GPS) and Amanah.

PAS wants to replace Malaysia’s democratic system with shariah law. The party’s stronghold, which traditionally lies in the east coast states of Kelantan and Terengganu, has now expanded to Kedah and Perlis states. Malaysia’s changing demography also strengthens PAS as Malay voters become more conservative, according to the Lowy Institute. Polling shows increasing numbers of Muslim youths want the Quran to replace the country’s constitution.

A PAS-led federal government would probably place greater emphasis on Islamic diplomacy and relations with Muslim-majority countries while maintaining pragmatic economic engagement with them. Its views on the recent US-Israel-Iran war are no different from Anwar Ibrahim’s government, according to Singapore’s Yusof Ishak Institute. Critics say PAS has yet to outline any concrete economic policies to tackle the country’s problems, including youth unemployment.

Economic Risk: November Update

Stable at 8

The economy expanded by 4.9% in 2025, according to the IMF, supported by strong domestic demand and a global tech-sector upcycle. Inflation remained low and stable, with average headline inflation at 1.4% in 2025, amid declining food and fuel price inflation. 

The economy is expected to grow by around 5% in 2026, supported by strong momentum in the country's current economic growth, according to the government. The electrical and electronics sector, including the semiconductor industry, has been among the biggest contributors to economic growth in recent months and is expected to continue expanding. The central bank believes the AI and technology upcycle could continue to support export growth into 2027, and even until 2028.

Although the economy is expanding faster than expected, some workers have yet to feel the benefits, highlighting what economists see as the country's challenge of turning strong growth into better wages and greater financial security. That also explains why Prime Minister Anwar is keen to delay any election until 2027 when workers may begin to feel the benefits of faster economic growth (See Political Risk section).

Inflation stood at around 1.8% in July 2026. The central bank maintained the Overnight Policy Rate at 2.75% in November, having last changed rates in July 2025. The central bank is expected to hold rates at 2.75% for the rest of the year.

Economic Risk - Context

Once dependent on commodities, Malaysia has a diversified economy, with services accounting for around half of GDP and manufacturing another quarter. Agriculture and mining account for much of the remainder. Malaysia is also one of the most open economies in the world, with a trade-to-GDP ratio averaging over 130% since 2010. Openness to trade and investment has been instrumental in employment creation and income growth, with about 40% of jobs in Malaysia linked to export activities, according to the World Bank.

The International Institute for Strategic Studies (IISS) has produced a report analysing the impact of a Taiwan Strait Crisis or Conflict on the Malaysian Economy. The report estimates the short-term and longer-term economic losses for Malaysia in two hypothetical, but plausible Taiwan Strait contingencies: a ‘crisis’, in which China imposes an economic quarantine on Taiwan; and a ‘conflict’, in which China attacks Taiwan militarily and a full-scale war ensues.

Bloomberg estimated in 2024 that such a conflict could cost the global economy US$10 trillion, or 10% of global GDP. Countries with strong economic ties to the US, China and Taiwan would be particularly affected. For the majority of countries in the Asia-Pacific, China remains their dominant trading partner, they are closely entwined with Taiwan in global supply chains, and the US remains an important investor.

China is Malaysia’s largest trading partner, and Malaysia’s role in the global semiconductor supply chain makes it particularly vulnerable to any potential Taiwan Strait contingency. The country also has significant bilateral trade with the US and Taiwan. Diplomatically, Malaysia tries to avoid choosing sides between the US and China, instead seeking to maintain positive relations with both.

In the crisis scenario, the IISS estimates the two key Malaysian sectors that would be most affected are electrical and electronic products and tourism. A year-long crisis could result in economic losses of RM79.5 billion (US$17.3bn) or 4.1% of GDP, and the loss of about 250,000 jobs. 

It believes that financial sanctions on China would probably not be severe. China would likely not be barred from the SWIFT financial-messaging system and its assets in dollars and euros would probably not be frozen. Consequently, says the IISS there would therefore be little additional impact on Malaysia’s economy.

In the conflict scenario, which the report imagines as a year-long military attack on Taiwan by China, the main estimates of the consequences for Malaysia would include: 

The impact on trade would be very severe. A year-long conflict could result in economic losses of RM790.2bn (US$172.6bn) or 41% of GDP, and the loss of 2.6 million jobs.

Financial sanctions on China would probably be severe. It would likely be banned from SWIFT and its reserves in dollars and euros would probably be frozen. This in itself would have a devastating impact on trade between China, Malaysia and Taiwan, at least in the short term. The Malaysian stock exchange would be severely affected and the ringgit would likely depreciate sharply against the dollar.

Malaysia attracted a record RM426.7bn (US$106bn) in approved investments for 2025, an 11.0% increase from RM384.4bn (US$95.5bn) in the previous year. Top FDI sources include Singapore (RM302.3 billion), followed by Hong Kong (RM148.4 billion) and Japan (RM103.8 billion). The services sector remains the primary magnet for foreign capital, accounting for 55.0% of total FDI. The manufacturing sector follows at 38.2%, with mining & quarrying making up 4.0%.

Foreign Direct Investment (FDI) into datacentres is a key driver of the investment growth and this shows no sign of slowing up. In February 2026, the Asean+3 Macroeconomic Research Office said that investments in data centres and semiconductors in Malaysia remain resilient despite uncertainties stemming from US tariffs and tighter technology controls. Its chief economist said the global technology upcycle is likely to persist, offering Malaysia a window of opportunity to attract sustained FDI into data centre and semiconductor-related industries.

Investment continues to climb in 2026. In the first half of the year, RM218.5 bn (US$54.02 bn) of investments were approved, up 11.7% year-on-year across 2,746 projects that are expected to create 99,030 jobs. Investment came from both global and Malaysian businesses: Foreign investment contributed RM126.9bn (US$31.38bn), up 18.5% y-o-y, while domestic investment rose 3.5% to RM91.6 bn (US$22.65bn).

In July 2026, analysis from Fitch suggested that Malaysia’s data centre sector may be better insulated than many assume from potential oversupply in AI data centres. Sajal Kishore, Fitch Ratings’ head of Asia-Pacific infrastructure and project finance, urged investors to look at where the facilities are located and whether they can serve and meet cloud-driven demand if current fierce paced AI demand slows.

Johor, where much of the new data centres in Malaysia are being built, has an advantage in that many of the facilities being developed in the state can also tap cloud demand or AI inference demand spilling over from Singapore, where land and power constraints continue to limit new data centre development.

Fitch has also indicated that Malaysia’s data centre sector will continue to benefit from capacity constraints in Singapore. The agency noted in August 2026 that Singapore’s provisional award of 200 megawatts (MW) of new data centre capacity falls well short of the capacity sought by competing proposals under the country’s Data Centre – Call for Application initiative. Fitch expects much of the unmet demand to shift to Johor, reinforcing its view that infrastructure availability, rather than demand, will increasingly shape growth in the Singapore-Johor corridor. Johor offers proximity, lower development costs and closer integration through the Johor-Singapore Special Economic Zone, according to Fitch.

An article in the Malaysian publication, the Edge, published in July, said that “precise figures remain fluid given the large pipeline of projects at different stages of development. Fitch estimates - based on reports – suggest that Malaysia could have roughly 2GW of operational and planned capacity by year-end, exceeding Singapore’s current 1.GW to 1.5GW.

Commercial Risk: November Update

Stable at 8

The banking system continued to hold adequate liquidity asset buffers in July, whilst impaired loans remained unchanged, according to the central bank. The liquidity coverage ratio stood at 148.7% in July, slightly lower than the 149.6% recorded in June, but still well above the regulatory minimum, the central bank said. In August, Fitch Ratings said it expected Malaysia's six largest banks to maintain resilient credit profiles, supported by a stable operating environment, sound asset quality, steady profitability and adequate capitalisation, even as the country's economic growth moderates in 2026.

"Profitability remains stable despite some margin pressure from a lower interest-rate environment and continued deposit competition, which should be mitigated by banks' established deposit franchises and active balance-sheet management," it said.

Commercial Risk - Context

Malaysia benefits from good infrastructure, an English-speaking business and consumer environment, and a well-established legal framework. However, the implementation of national policies varies from state to state, with Kuala Lumpur regarded as the easiest place in which to conduct business.

Corruption remains a challenge: Malaysia ranked 54th among 180 countries in Transparency International’s Corruption Perceptions Index (CPI) for 2025, moving up from 57th place in the previous year. Transparency International, the global anti-corruption coalition, argues that Malaysian politicians continually fail to combat corruption because influence and alliance-building trump accountability. Bribery is perceived as a standard business practice, while 71% of Malaysians believe officials are highly corrupt, according to a report by The Diplomat.

The Heritage Foundation ranked Malaysia as the 45th freest economy in its 2026 Index of Economic Freedom. The country scored 68, an increase of 0.9 points from last year. Malaysia is ranked 8th out of 39 countries in the Asia-Pacific region. The country’s economic freedom score is higher than the world and regional averages. Malaysia’s economy is considered “moderately free” according to the 2026 Index.

Technology Risk: November Update

Stable at 8

Malaysia’s Audit Oversight Board is now focussing on audit firms’ rising use of artificial intelligence. How firms manage technology risks, will be one area to be targeted. Firms are expected to show strong governance, perform full risk review and take measures to mitigate technology risks.

Technology Risk - Context

The Global Innovation Index (GII), from the World Intellectual Property Organization, is an important index used by countries and multinational companies to assess innovation ecosystems and aid in policymaking and investment decisions.

Malaysia ranked 34th out of 139 countries in the 2025 GII and ranked 8th among the 17 economies in South East Asia, East Asia, and Oceania. It ranks 2nd among the 36 Upper middle-income group economies.

Government policies

Malaysia's primary technology strategy is anchored by the Digital Action Plan 2030 (MD2030) and the National AI Action Plan 2026-2030, aimed at transforming the country into an AI-powered digital nation. The plan is structured around seven pillars: government, economy, infrastructure, talent, society, trust and security, and innovation. MD2030 explicitly makes Malaysia's trajectory to becoming an "AI-powered nation." A new agency, GovTech Malaysia, will drive public sector transformation. This should be of interest to foreign companies with expertise in government digital services, cloud platforms, and AI integration. They have a ready market as Malaysia scales smart-city projects, automated public services, and data-driven policy tools.

Infrastructure

The World Bank ranks Malaysia 2nd in Southeast Asia for infrastructure quality. Investments – amounting to RM 400bn (US$ 95bn) alone during the 2021-25 development plan - focus on transportation, utilities, and digital infrastructure, solidifying Malaysia’s position as a regional leader.

The 2026-30 plan also involves heavy investment in infrastructure including a RM43bn grid upgrade to add storage and smart control so the energy system can support heavy industrial loads and rising data centre demand. The Plan also encompasses a National Semiconductor Strategy that aims for a cumulative investment of RM500bn with RM25bn in public support across the phases.

Other key infrastructure projects covered by the plan include the completion of the Klang Valley MRT3 Line, expansion of interstate highways like the West Coast Expressway and Pan Island Link 1, and the East Coast Rail Link (ECRL) corridor development with associated industrial parks and the Johor Singapore Special Economic Zone.

Education and skilled staff

Malaysia’s latest Programme for International Student Assessment (PISA) results underline the poor state of the country’s education system. The OECD identified mathematics as the most concerning area, with Malaysia’s score falling to 397 in PISA 2025 from 409 in 2022. Around 48% of students fell below the lowest international benchmark and only around 1% reached the advanced benchmark. Science and reading performance showed no significant change. Malaysia spends more on education than regional neighbours such as Thailand and Vietnam who perform better.

Environmental, Social and Governance (ESG): November Update

Stable at 8

Sarawak has cemented its standing as a pioneer in aligning economic expansion with environmental, social and governance goals, according to the New Straits Times. The state reclaimed the Best Sustainability Initiative (Destination) honour at the 2026 Meetings & Conventions Asia Stella Awards, two years after first winning the honour in 2024. The newspaper said the recognition validates how the state's Legacy Impact Framework has redefined standards for responsible business events across the region, embedding sustainable development at the intersection of commerce, community welfare and environmental stewardship.

ESG Risk - Context

The United Nations’ Sustainable Development Goals (SDGs) are recognized as a beneficial framework for responsible investment. The Sustainable Development Report from Cambridge University Press assesses the progress of all UN Member States on the SDGs. It provides a useful means of ranking Southeast Asian countries on their ESG progress.

Malaysia is ranked 76th out of 169 in the 2026 report, with a score of 70.4.

Environment – A World Bank report issued in July 2026 has found that as climate risks grow, strong institutions will play a vital role in protecting communities, livelihoods, and Malaysia's long-term economic resilience. The World Bank also highlighted the risk climate change poses to Malaysia:

“In the first half of 2026, a nationwide heatwave pushed temperatures in the north to 40°C, forcing schools to shift to remote learning and leaving some dams at critically low levels. As climate change brings stronger storms, longer dry spells, and more unpredictable monsoon seasons, food supply chains come under pressure, and farmers’ livelihoods are increasingly strained, with agriculture among the most exposed sectors.”

Social – The US State Department’s 2024 report on Malaysia says that “there were no reports the government or its agents committed arbitrary or unlawful killings, including extrajudicial killings, during the year”.

In May 2026, the government announced Malaysia has launched a major workforce-focused economic package aimed at strengthening employment stability and future skills. Prime Minister Anwar Ibrahim announced the Progressive Acceleration for Capability and Employment (PACE) Economic Resilience Package, valued at more than US$180 million, as part of efforts to strengthen human capital development and ensure the stability of the national labour market. PACE includes a RM580 million allocation to strengthen the social safety net through Employment Insurance System benefits, aimed at assisting workers who have lost their jobs while enhancing their employability. It will also apply to cross border workers. More than 480,000 people commute across the Johor Causeway to Singapore for work.

Malaysia’s Gig Workers Act 2025 (Act 872) officially came into force on 31st March 2026, strengthening welfare and protections for more than 1.6 million workers. The new legislation introduces a comprehensive legal framework covering transparent service agreements, payment certainty, protection against discrimination, and access to dispute resolution mechanisms. It also expands social security coverage and strengthens occupational safety protections, while maintaining the flexibility that defines gig work.

Governance – The Companies Act 2016 (“CA 2016”) serves as the principal legislation governing the management and operation of companies. It outlines essential provisions regarding the roles and responsibilities of directors, shareholders’ rights and the operational procedures for corporate decision-making. In May, the government ordered law enforcement agencies, including the Malaysian Anti-Corruption Commission, to probe the allegations that a network of businessmen was colluding with anti-graft agency officials to oust executives, Bloomberg reported. The news agency reported the allegations in February.

Latest Economic Data

	2023	2024	2025	2026f	2027f
GDP Growth	3.5	5.1	4.9	5.0	4.8
Inflation	2.5	1.8	1.4	2.2	2.1
Unemployment	3.4	3.2	3.0	3.0	3.0
Current Account (% GDP)	4.4	6.1	8.5	8.2	9.0
Budget Deficit (% GDP)	-5.5	-5.0	-4.1	-3.8	-3.5
Public Debt (% GDP)	69.7	69.8	70.0	69.5	69.0

f  forecasts
Source:International Monetary Fund / Worldbox Business Intelligence forecasts.

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