Malaysia

Key development challenges

Malaysia is an upper middle-income country. Its $407 billion GDP (2022) accounts for 11.2% of the regional GDP of Southeast Asia. With a population of 34 million, Malaysia’s GDP per capita of $11,993 is the third-highest in the region, after Singapore and Brunei.

Malaysia is expected to transition to high-income economy status between 2024 and 2028. Despite this progress, Malaysia faces several development challenges. Income inequality is high relative to other East Asian countries, and corruption remains a challenge.

Over the 2015–22 period, more than 5,000 aid projects were implemented by 55 development partners in Malaysia, amounting to more than $9.4 billion in official development finance (ODF) disbursements — including grants, loans, and other forms of assistance.

Overview of development finance trends

In real terms, flows to Malaysia increased by 61% between 2015 and 2022. The expansion was the result of an increase in both loans, which surged by 66% over the period, and grants, which grew by 8%.

However, ODF to Malaysia remained modest compared to other recipient countries in the region, ranking 8th (out of 11) by average annual disbursements. With an average of $1.1 billion per year disbursed between 2015 and 2022, ODF in Malaysia only accounted for 3.7% of total regional development finance spent.

Over the period analysed, the role and significance of ODF spent relative to Malaysia’s GDP was marginal, starting at 0.28% of GDP in 2015 and increasing slightly to 0.33% in 2022. This result can be explained by Malaysia’s upper middle-income status and large economy, but also by significant project implementation difficulties.

In Malaysia, commitments were 121% higher than actual disbursements over the 2015–22 period.

In fact, 45% of projects committed in Malaysia during the 2015–22 period resulted in disbursements, below the regional average of 67%. China, the top source of ODF in Malaysia, was a major factor in this gap, with a disbursement percentage of only 39%. For example, in 2019, China committed $12 billion to the East Coast Rail Link, but by 2022 had only disbursed $3.6 billion. Similarly, Beijing committed $1.3 billion for the multi-product pipeline construction project, financed by the Export–Import Bank of China in 2017, but the Malaysian government cancelled the project in 2018.

Main development partners

The majority of Malaysia’s ODF was provided by China (80%), which averaged more than $939 million in annual disbursements between 2015 and 2022. South Korea was Malaysia’s second-largest development partner, with $122 million in annual disbursements over the period.

Development finance was mostly for large infrastructure projects in transport and energy, which were almost exclusively financed through non-concessional loans.

Malaysia is now a top recipient of China’s Belt and Road Initiative (BRI) funding. Malaysia’s largest project by disbursements, the East Coast Rail Link, is a 665-kilometre rail network connecting the east coast states with the west coast of peninsular Malaysia. Construction began in 2017 and the project is financed by the Export–Import Bank of China. It is worth $12 billion in non-concessional loans, of which $3.6 billion had been disbursed by the end of 2022.

South Korea provided 10% (or $459 million in constant 2022 US$) of Malaysia’s development finance in 2015, surpassing China’s contributions. In recent years, however, South Korea’s share has declined, with the country providing an average of $55 million per year between 2020 and 2022. In terms of projects, the Export–Import Bank of Korea provided several non-concessional loans between 2015 and 2019 within the industry, mining and construction sector, which totalled $511 million. Within the energy sector, it provided $238 million in non-concessional loans between 2015 and 2022.

Japan’s relatively small contributions of ODF to Malaysia were provided through grants or concessional loans for projects that spanned multiple sectors. The largest project, the Pahang–Selangor Raw Water Transfer Project, which was funded via a concessional loan from the Japan International Cooperation Agency (JICA), aimed to provide a stable water supply to Kuala Lumpur and its surrounding area. In real terms, a total of $132 million was disbursed by JICA between 2015 and 2019.

Overall, only 9% of development support provided to Malaysia was concessional (official development assistance or ODA), lower than the regional average (46%).

Sectors

The distribution of ODF in Malaysia by sector was very different to the rest of the region. Notably, the government and civil society sector (1%) proportionally received much less than the regional average (18%). Conversely, the transport and storage sector (41%), as well as industry, mining and construction (19%), featured prominently, surpassing the regional average. The energy sector also accounted for a reasonable proportion of Malaysia’s ODF (18%), though was broadly consistent with the regional average (19%).

Within the transport and storage sector, rail transport accounted for virtually all disbursements. China’s East Coast Rail Link was the largest project in the sector. In industry, mining and construction, the basic metal industry represented 64% of the sector, with the Kuantan Industrial Park Integrated Steel Project, implemented by China’s MC22 Group Corporation, being the most significant ($954 million non-concessional loan).

Climate

The level of climate development finance in Malaysia is modest. Despite an overall increase in ODF of 61% between 2015 and 2022, this was mostly for non-climate-related projects. It is difficult to determine if climate-related finance is falling as a proportion of the overall ODF disbursed, given that climate development finance oscillates depending on the disbursement of a few large projects that have mostly been focused on the energy sector.

For Malaysia, few ODF projects were considered “principal” in climate focus over the period. In fact, 71% of all “principal” climate disbursements were delivered in 2015 alone. The largest of those disbursements was for a solar energy project, with funding from the Export–Import Bank of China to publicly held JinkoSolar, amounting to $70 million in non-concessional loans.

Most climate-related projects were funded through non-concessional loans (91%) rather than grants (9%), and the largest development partner by far was China, accounting for 90% of all climate development finance.

On average, total climate development finance was $142 million per year between 2015 and 2022, which accounted for 12% of total ODF over this period.

Gender

The level of gender development finance is extremely modest in Malaysia and does not appear to be increasing, with “principal” and “significant” gender projects only accounting for 1% of overall ODF disbursed between 2015 and 2022. One of the largest “principal” gender projects in Malaysia was via a $365,000 grant from the European Commission in 2017 for the protection of women’s human rights through the expansion of public space for debate and capacity building.

The majority of gender development finance in the country was invested in education (41%), most notably in higher education, and government and civil society (19%). All gender-related projects were financed through grants, and the largest partners were France, the United Kingdom, and the European Union.

Malaysia as an ODF provider

Malaysia contributed $743,000 to lower middle-income countries in Southeast Asia between 2015 and 2022. Malaysia disbursed an average of $73,000 per year as a member of the ASEAN Coordinating Centre for Humanitarian Assistance. Further, in the “spirit of ASEAN solidarity”, Malaysia provided $100,000 in humanitarian aid in 2018 to the Government of Laos to aid victims following the collapse of the Xepian-Xe Namnoy dam.

Despite being an upper middle-income country and having the fifth-highest GDP in the region, Malaysia only provided 0.12% of total regional ODF, making it the eighth-most significant provider out of 11 Southeast Asian countries. Vietnam, Cambodia, and Timor-Leste were more generous, despite their lower middle-income status and smaller economies.