Malaysia

Moderate growth, supported by the rise of AI and domestic demand

Malaysian growth is expected to moderate again in 2026. The international context is marked by increased protectionism, while the economy is heavily dependent on exports. The 19% tariff levy imposed by the US – Malaysia's second largest trading partner, accounting for 13% of exports in 2024 – could weigh on sales. In addition, the normalisation of exports, following their strong growth in early 2025 in anticipation of the Trump administration's protectionist measures, will also contribute to the slowdown in their growth. However, strong global demand for semiconductors and data centres, driven by the rise of artificial intelligence and electronic recycling, will continue to support Malaysian exports. This momentum should offset the contraction in sales of petroleum products, the second-largest export item, which has been affected by low global energy prices. The New Industrial Master Plan 2030 (NIMP2030), combined with major infrastructure projects, aims to stimulate growth in the electronics, aerospace, and petrochemical sectors by attracting significant foreign direct investment. High capital spending will support public investment. Private consumption will remain buoyant, supported by moderate inflation and rising incomes. The latter is due to the strong labour market—unemployment stood at 3% in 2025—and favourable government measures such as civil service pay rises. Last, services will remain the main driver of the economy (60% of GDP in 2024) and will be buoyed by trade, ICT, financial services—particularly Islamic finance—and tourism. The latter will be stimulated by spending related to the Visit Malaysia 2026 campaign and the increase in the influx of Chinese visitors owing to the conflict between Thailand and Cambodia.

In 2026, inflation is expected to accelerate slightly, driven by new taxes and the rationalisation of subsidies. In particular, the gradual introduction of a targeted subsidy scheme for RON95 fuel will lead to higher prices for consumers excluded from the scheme, who will now be subject to market prices. However, lower global energy and food prices should ease these pressures, keeping inflation within the central bank's target range of 1.5% to 3%. The key interest rate is therefore expected to remain stable at 2.75% in 2026.

Continued fiscal consolidation, high but manageable public debt

The government will maintain its fiscal consolidation target, aiming for a further reduction in the deficit in 2026. The budget forecasts a decline in non-tax revenues on back of lower dividends paid by the national oil company Petroliam due to the fall in global energy prices. The focus will be on controlling operating expenses and rationalisation of subsidies will be the main lever. Measures already undertaken include the elimination of the subsidy on eggs and the reform of the subsidy on RON95 fuel. The savings generated will be redirected toward development spending, particularly in human capital, infrastructure and social support, with a minimum target of 3% of GDP. At the same time, increases in excise duties on alcohol and tobacco, the introduction of a carbon tax, and the extension of the sales and services tax will support tax revenue growth. In addition, the acceleration of digitalisation should contribute to better revenue collection and stronger governance. Last, public debt remains moderate and manageable, although close to the legal ceiling of 65% of GDP. It is predominantly domestic (76%) and almost entirely denominated in local currency (98%). Nearly two-thirds of the outstanding debt consists of long-term securities (over five years), which reduces refinancing risks.

The current account balance is expected to remain in surplus, thanks in particular to exports of goods (especially electronics and electrical goods) and a reduction in the services deficit amid buoyant tourism. However, this surplus could be undermined by increased global protectionism, particularly in the US. The repatriation of profits by foreign companies and remittances from foreign workers will contribute to persistent deficits in the income account. Although international reserves are increasing thanks to the recurring current account surplus and foreign investment flows, their ratio to imports and their ability to cover short-term external debt are declining. They currently cover only four to five months of imports and nearly 80% of short-term external debt. Last, external debt represented 66% of GDP in 2024, nearly three-quarters of which is owed by private debtors. In addition, three-quarters of this debt is denominated in foreign currency.

Relative political stability

The May 2023 elections resulted in a divided political landscape marked by ethnic and religious differences. None of the three main coalitions—Pakatan Harapan (PH), Perikatan Nasional (PN) and Barisan Nasional (BN)—managed to win an absolute majority. Thanks to the king's intervention, PH (81 of 222 parliamentary seats), BN (30) and several regional parties—Sarawak (23) and Sabah (6)—agreed to form a coalition government. Anwar Ibrahim, leader of PH, was appointed Prime Minister. Despite the diversity of interests within the government, political stability is expected to continue until the general elections scheduled for February 2028 at the latest, thanks to cordial relations between PH and BN and a weakened opposition (69 seats for the PN). However, the pro-Malay factions in his coalition—notably UMNO within BN, the historic rival of Anwar and PH—are forcing Anwar to maintain affirmative action policies in favour of the Bumiputera people (nearly 70% of the population) otherwise he risks losing their support, which will compromise his parliamentary majority.

In spite of escalating tensions between the US and Japan on the one hand, and China on the other, Malaysia is determined to maintain its relations with all three countries. This is despite Malaysia’s dispute with Beijing over the South China Sea, as China is a major trading partner and source of investment. Malaysia has signed a reciprocal trade agreement with Washington that sets a 19% tariff on its exports to the US, while granting exemptions for around 12% of its exports, including aerospace equipment, pharmaceuticals, rubber, cocoa and palm oil. In return, Malaysia has committed to importing US goods, including aircraft and semiconductors worth an estimated USD 170 billion over five years. In addition, the country has deepened its security cooperation with the US and Japan. Last, it is seeking to diversify its trading partners by concluding new free trade agreements. After signing an FTA with EFTA (Switzerland, Norway, Iceland and Liechtenstein) in June 2025, negotiations with the European Union for a similar agreement will continue in 2026.

Payment

Bank transfers, cash, and cheques are all popular means of payment in Malaysia. The well-developed banking network allows for online payments. Letters of Credit are also commonly?used. As of 2017, the Central Bank requires that 75% of payments in foreign currencies are converted into the Malaysian ringgit (MYR) automatically upon receipt. Payments for transactions within Malaysia are required to be made in ringgit.

Debt Collection

Amicable phase

It is common for disputes and or debt to be settled amiably after negotiations. If there is no response from the buyer, a site visit and online searches are conducted to ascertain the operating status and legal status of the buyer. If the buyer continues to ignore and or neglect to settle the matter amicably, the supplier may begin legal proceedings to recover payments for goods sold and delivered. However, due diligence should be done to ensure that the buyer has sufficient assets to satisfy the debt before proceedings are initiated.

Legal proceedings

The Malaysian legal system is based upon the English common law system. The hierarchy of courts in Malaysia starts with the Magistrates’ Court at the first level, followed by the Sessions Court, High Court, Court of Appeal and the Federal Court of Malaysia. The High Court, Court of Appeal and the Federal Court are superior courts, while the Magistrates’ Court and the Sessions Courts are subordinate courts. There are also various other courts outside of this hierarchy, e.g. Employment Admiralty, Shariah or Muslim matters.

Claims in Magistrates’ court are limited up to MYR 100,000, whilst a Sessions Court may hear any civil matters where the amount in dispute does not exceed MYR 1,000,000. Where the amount claimed does not exceed MYR 5,000, a claim should be filed with the small claims division of the Magistrates’ Court. However, legal representation is not permitted. The High Court has the jurisdiction to try all civil matters and monetary claims exceeding MYR 1 million.

An unpaid debt normally has a six-year statute of limitation period. The creditor commences a writ action and serves the writ on the debtor within six months from the issue of the writ. When defendants are served with a writ, they have 14 days after service of the writ (or 21 days if the writ was served outside Malaysia) to file a Memorandum of Appearance with the court to indicate their intention to appear in court and defend the suit.

Before a writ can be issued, it must be endorsed with a statement of claim or, with a general endorsement consisting of a concise statement of the nature of the claim made and the requisite relief or remedy. When the writ only has a general endorsement, the statement of claim must be served before the expiration of 14 days after the defendant enters an appearance.

When the defendant has entered appearance, he is required to file and serve his defence on the plaintiff 14 days after the time limit for entering an appearance, or after service of the statement of claim, whichever is later. A defendant may make a counterclaim in the same action brought by the plaintiff. A plaintiff must serve on the defendant his reply and defence to a counterclaim, if any, within 14 days after the defence (and counterclaim) has been served on him.

Proceedings may be resolved and/or otherwise summarily terminated and/or determined and/or disposed of at an early stage before the trial of the action.

FAST-TRACK PROCEEDINGS

Failure to enter an appearance may result in a plaintiff proceeding to enter a judgment-in-default against a defendant. Ordinarily, when a defendant has filed an appearance and also a statement of defence subsequent to other procedures of filing of documents in support, the matter would be set for trial. If the defendant has entered an appearance and filed a defence, but it is clear that the defendant has no real defence to the claim, the plaintiff may apply to court for summary judgment against the defendant. To avoid summary judgment being entered, the defendant has to show that the dispute concerns a triable issue or that there is some other reason for?trial. 

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Enforcement of a Legal Decision

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WRIT OF SEIZURE AND SALE (WSS)

A WSS may be enforced against both movable and immovable property as well as against securities. When the property to be seized consists of immovable property or any registered interest, the seizure shall be made by an order prohibiting the judgment debtor from transferring, charging or leasing the property.

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GARNISHEE PROCEEDINGS

A Judgment Creditor may garnish monies a Judgment Debtor is supposed to receive from a third party. If the garnishee does not attend court, then the order is made absolute. If the garnishee does attend, the court can either decide the matter summarily or fix the matter for trial.

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JUDGMENT DEBTOR SUMMONS

The objective of this summons is to give the judgment debtor an opportunity to pay the judgment debt in instalments to commensurate his means. Debtors themselves can apply for such a procedure. Alternatively, under Order 14 the defendant can admit the plaintiff’s claim and propose to pay by instalments, which the court can subsequently order if the plaintiff accepts the proposal.

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BANKRUPTCY PROCEEDINGS

If the total judgment of debt exceeds MYR 30,000, bankruptcy proceedings can be triggered if the judgment debtor has not complied with the judgment or order made against him. Once a debtor has been adjudged bankrupt, other creditors are also entitled to file the Proof of Debt form and Proxy in order to be entitled to share in any distribution from the estate of the bankrupt. The distribution of the estate is according to the priority of the creditors’ claim.

FOREIGN JUDGEMENTS

Any decision rendered by a foreign country must be recognized as a domestic judgment in order to become enforceable through an exequatur procedure. Malaysia has reciprocal Recognition and Enforcement Agreements with some countries, including Hong Kong, India, and New?Zealand.

Insolvency Proceedings

There are several insolvency and restructuring procedures available. Under the Companies Act, the available insolvency proceedings include:

compulsory and voluntary winding-up of companies;

appointment of receivers and managers;

restructuring mechanisms.

Last updated:January 2026