IMF Staff Completes 2018 Article IV Visit to Malaysia
IMF News, December 11, 2017
Source details
- Canonical URL
- IMF Staff Completes 2018 Article IV Visit to Malaysia
Other formats
Bibliographic details
- Published: December 11, 2017
Growth and inflation: recent performance and 2017 outcomes
- Real GDP growth has surprised on the upside and is projected at 5.5–6.0 percent for 2017, driven by domestic demand and robust exports.
- Real GDP growth grew at 5.9 percent year-over-year in the first three quarters of 2017.
- Headline consumer price inflation has gone up on higher oil prices and is projected at close to 4 percent for 2017.
- Core inflation and credit growth are contained.
- On the external side, the current account balance surplus has increased, helped by strong exports.
Outlook and risks (near term and 2018 projection)
- Real GDP growth is projected at 5.0–5.5 percent in 2018.
- Headline inflation is expected to decline to the 3.0–3.5 percent range in 2018 on lower impact from global oil prices.
- Near-term risks are described as balanced:
- Upside: Strong global demand for electronics could last longer than anticipated, benefiting Malaysia’s exports.
- Downside: Policy uncertainty in advanced economies and tighter global financial conditions.
- Policy message: Striking the right balance in policies will be key.
Fiscal policy guidance
- The government’s planned pace of fiscal consolidation for 2017–18 is appropriate and will help build buffers and maintain financial market confidence.
- Medium-term recommendation:
- Fiscal policy should follow a gradual consolidation path.
- The composition of adjustment could be improved to make it more revenue based and to make room for structural reforms and increased social spending for inclusive growth.
- Medium term fiscal targets should be better communicated.
- Fiscal policy should prioritize adjustment through higher revenues, making room for increased pro-growth social spending.
Monetary and external policy guidance
- The current accommodative monetary policy stance with a bias towards reduced accommodation is appropriate, given above–potential growth but still stable core inflation.
- Authorities should stand ready to raise the policy rate should leading indicators suggest the emergence of overheating pressures.
- Continued reliance on exchange rate flexibility and macroeconomic policy adjustments should be the first line of defense against capital flow shocks.
- The authorities’ emphasis on consultation with market participants in developing onshore financial markets is welcome; continuous communication on initiatives to deepen these markets would help build confidence.
Financial sector assessment
- The financial sector is resilient.
- Bank profitability and liquidity are sound, and corporate access to credit remains healthy.
- Housing price growth has moderated, but pockets of risks exist in exposures to household mortgages and the property development sector; their impact on macro-financial stability appears contained.
Structural reform priorities
- The authorities’ comprehensive structural reform agenda, laid out in the 11th Malaysia plan, focuses on supporting higher productivity and improving labor market outcomes to boost medium-term growth and improve living standards.
- Priority policy actions recommended:
- Encourage female labor force participation.
- Improve the quality of education and skills.
- Improve vocational and technical training to reduce labor market skill mismatches.
- Encourage R&D.
- Update public infrastructure.
Mission, consultations, and next steps
- An IMF team, led by Nada Choueiri, visited Kuala Lumpur and Putrajaya from November 28-December 8 2017 for the 2018 Article IV Consultation discussions.
- The team exchanged views with senior officials of the Government of Malaysia and Bank Negara Malaysia (BNM), and met with representatives from the private sector and think tanks.
- The mission will prepare a staff report and present it to the Executive Board of the IMF, currently expected in February 2018.
IMF Communications Department — Press Release No. 17/478; December 11, 2017. Statement issued by Ms. Nada Choueiri at the conclusion of the mission.