Country Economic Work for Malaysia - Islamic Development Bank

I. DIAGNOSING THE MALAYSIAN ECONOMY:
SOCIO-ECONOMIC DEVELOPMENT
1. As part of its Vision 1440H (2020), the IDB Group embarks on Member Country
Partnership Strategy (MCPS) for its member countries, aimed at improving the efficiency and
effectiveness of Group operations through close consultation with the key stakeholders. Before
preparing any MCPS, it is extremely important to undertake a proper diagnostic of the country in
order to understand key socio-economic challenges facing the country, particularly, identifying
the binding constraints to achieving sustainable economic growth. Adopting this process, the IDB
Group can assist the country in more effective way through the MCPS exercise.
2. Before undertaking the MCPS for Malaysia, the IDB Group MCPS Team initiated the
Country Economic Work (CEW) aimed at providing analytical analysis of recent socio-economic
development and major challenges facing the country. In particular, the CEW focuses on
identifying binding constraints to achieving sustainable economic growth in Malaysia. Further,
through extensive consultation with key stakeholders (public sector, private sector, business
community, academia, civil society etc.), two main pillars namely (i) Private Sector
Development; and (ii) Reverse Linkages have been identified for the IDB Group support over the
next 4 to 5 years. Therefore, in-depth diagnostics have been undertaken for these two sectors in
order to find out niche areas for IDB Group interventions. This Country Economic Work uses the
latest available information and data from reliable national and international sources.
3. The CEW document is structured as follows. Recent socio-economic developments of
Malaysia are analysed in Section II. Major issues and challenges facing the country are
highlighted in Section III. Using the Diagnostic Framework developed for this study, the binding
constraints to sustainable economic growth are identified in Section IV. Diagnostic analysis of
binding constraints to Private Sector Development is presented in Section V. Finally, the analysis
of Reverse Linkages opportunities is given in Section VI.
II.
RECENT SOCIO-ECONOMIC DEVELOPMENT
4. Since gaining independence (more than five decades ago), Malaysia has achieved
remarkable successes, particularly, in terms of socio-economic development. From a low-income
agrarian country dependent on rubber and tin, Malaysia has emerged as a modern, industrial, and
high-middle income nation with strong economic fundamentals. Malaysia’s successful
implementation of various socio-economic policies over the years with significant support from
the private sector, provide a solid platform on which the country is basing its next phase of
development to achieve high income and developed nation status by 2020. Data on major
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