Malaysia Nears High-Income Threshold as OECD Projects 2028-2030 Breakthrough

Within Reach

Malaysia's gross national income per capita stood at RM57,200 ($13,351) in 2025, placing the country just 7.1% below the World Bank's high-income threshold of $14,375, according to Akmal Nasrullah Mohd Nasir, the nation's minister of Economy. He outlined the figure during the launch of the Organisation for Economic Co-operation and Development's Economic Survey of Malaysia on Tuesday, emphasizing that the government remains focused on translating growth into productivity gains, higher-quality employment, and rising household incomes.

The OECD report projects Malaysia will cross into high-income territory between 2028 and 2030, with GDP forecast to expand 4.9% this year and 5% in 2027. The government has maintained its 2026 growth target at 4-5%. Inflation is expected to climb to 2.1% in 2026 and 2.3% in 2027, driven by wage increases and energy costs, while unemployment is forecast to fall further to 2.9% this year. The fiscal deficit is projected to narrow from 4.3% of GDP in 2025 to 4% in 2026 and 3.8% in 2027.

Structural Pressures

The OECD's survey underscores that reaching high-income status is only part of the challenge. Sustaining long-term growth, sidestepping the middle-income trap, and managing an aging population will require deeper structural reforms, the organization cautioned.

Among its recommendations, the OECD urged Malaysia to reintroduce the Goods and Services Tax, a politically sensitive move that the government shelved in 2018. The organization also called for gradually replacing broad fuel subsidies with targeted cash transfers, a shift that would reduce fiscal drag while protecting lower-income households. On education, it recommended prioritizing academic merit in public university admissions and expanding investment in free early childhood education, measures aimed at lifting human capital over the long term.

Data Center Dilemma

The report also flagged risks associated with the rapid expansion of data centers across the country. While the sector has attracted significant foreign investment, particularly from hyperscale cloud providers, the OECD warned that data centers generate relatively few jobs while placing growing pressure on electricity and water supplies. The organization stressed the need to accelerate renewable energy development to meet rising demand without undermining sustainability goals.

This tension reflects a broader challenge for Malaysia and its Southeast Asian neighbors: balancing the economic benefits of digital infrastructure with the resource constraints and environmental costs that accompany it. The OECD's emphasis on renewable energy aligns with growing investor and regulatory scrutiny of the carbon footprint of data center operations across the region.

Governance and Productivity

The survey also addressed corporate governance in government-linked companies, which remain a significant component of Malaysia's economy. The OECD recommended improving transparency and accountability by limiting politically motivated board appointments and adopting its guidelines on corporate governance of state-owned enterprises. The goal is to enhance productivity and operational efficiency, areas where GLCs have historically lagged behind private-sector peers.

Akmal Nasrullah said the OECD report would serve as an important reference for implementing Malaysia's 13th Five-Year Plan, which covers 2026 to 2030, and for accelerating the country's structural economic reforms. The plan is expected to address many of the issues raised in the survey, including fiscal consolidation, energy transition, and labor market reforms.

Regional Context

Malaysia's trajectory offers a case study for other middle-income economies in Southeast Asia grappling with similar transitions. Thailand, for example, has struggled for decades to escape the middle-income trap, while Vietnam is racing to upgrade its manufacturing base and improve productivity before demographic headwinds intensify. Indonesia, with its vast population and resource base, faces a different set of challenges but shares Malaysia's need to overhaul subsidies, improve governance, and invest in human capital.

The OECD's projections for Malaysia depend on sustained policy execution. The country's ability to implement politically difficult reforms, particularly on taxation and subsidies, will determine whether it can deliver on the 2028-2030 timeline. For investors and policymakers across the region, Malaysia's next few years will be closely watched as a test of whether structural reform can keep pace with ambition.