Malaysia’s economy is doing well, but social and governance challenges must be addressed. The new government prioritises inclusive growth and improving trust in public institutions. Further progress towards the planned target of high-income country status by 2024 will also require focusing on productivity growth with structural reforms to move up the value chain and improve skills. Ensuring environmental protection will improve the quality of growth. Growth is set to moderate in the near term, mainly due to slowing global trade. The rising cost of living has been a source of concern for large segments of the population. Progress could be made by providing a more targeted support, boosting entrepreneurship, improving productivity and employability among the low-income households. Fiscal policy needs reform. Building up fiscal space and ensuring medium-term sustainability will require increasing the low level of tax revenue. Improving budget process transparency and strengthening public debt management are key to fiscal accountability. Human capital development is needed to boost productivity and promote inclusive growth. Labour market imbalances hinder productivity and make it more difficult to climb up the value chain. Investment in education and training would help under-qualified workers. Policies to stimulate the demand for high-level skills would support those who are over-qualified. SPECIAL FEATURE: REDUCING SKILLS IMBALANCES TO FOSTER PRODUCTIVITY GROWTH