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Malaysia is an upper-middle income, highly open economy with a record of strong economic performance and poverty reduction since independence from Great Britain in 1957. Malaysia enjoys significant natural resources, as the second largest oil and natural gas producer in Southeast Asia, and the second largest exporter of liquefied natural gas globally. Meanwhile, thanks to the diversified structure of its economy, Malaysia has proved its resilience to external shocks. In the period 2015-2019, economic growth has been robust and reached 4.9% per year on average. However, in 2020, Malaysia recorded its deepest recession in twenty years due to the COVID-19 pandemic shock. In the medium term, economic prospects are favourable although Malaysia is highly exposed to rising protectionism and trade tensions given its high degree of openness and its extensive integration in global value chains. In order to elevate potential growth and move Malaysia’s GDP per capita closer to that of high-income economies, the government needs to continue to stimulate the participation of women in the workforce and encourage investments in innovation and new technology.

Already weakened before the crisis due to the removal of the Goods and Services Tax in July 2018 (GST), public finances deteriorated further with the COVID-19 crisis. However, despite the high level of debt, refinancing risks have been moderate so far, thanks to abundant domestic savings and a wide range of domestic investors that maintain the government’s borrowings costs at a low level. However, the structural decline in the government’s revenues and the increase in the burden of gross interest payments have reduced the central government’s capacity to provide fiscal support in response to a new, large shock.