IMF Staff Completes 2020 Article IV Consultation Visit to Malaysia
IMF News, December 17, 2019
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- Published: December 17, 2019
Mission timing and participants
- IMF team led by Nada Choueiri visited Kuala Lumpur and Putrajaya from December 5 to December 17, 2019.
- Statement issued at the conclusion of the visit by Ms. Choueiri.
- IMF team to prepare a staff report to be presented to the Executive Board of the IMF, currently expected in February 2020.
Near-term growth and inflation outlook
- Real GDP growth is projected at 4.5 percent for 2019, underpinned by domestic demand.
- Real GDP growth is projected stable at 4.5 percent in 2020, with domestic demand remaining the main driver.
- Headline inflation is expected to remain subdued at slightly under 1 percent in 2019.
- Inflation should average 2.1 percent in 2020 as the effect of the GST removal vanishes.
External sector and capital flows
- Credit growth has moderated recently, and capital flows have been manageable.
- The current account surplus is projected to increase to 3.5 percent of GDP in 2019.
- External downside risks highlighted:
- Escalating trade tensions (notably U.S.–China).
- An abrupt deterioration in market sentiment towards emerging markets.
- Weaker-than-expected trading partner growth.
- External upside risk: finalization of a sustainable phase-one deal between the US and China.
Growth risks — domestic and external
- On balance, risks to the growth outlook are to the downside.
- Domestic downside risks include:
- A sharp drop in real estate prices.
- A deterioration in household debt service ability.
Fiscal policy assessment
- The fiscal adjustment planned for 2019 is on track.
- The 2020 budget strikes a balance between fiscal consolidation and growth.
- The authorities’ commitment to medium term fiscal consolidation is welcome and would create space for increased social spending and help achieve inclusive growth.
- Priority: identifying specific revenue and spending measures to support medium term fiscal consolidation.
Monetary policy assessment
- Malaysia’s monetary policy framework has performed well, delivering price stability and robust growth in recent years.
- The current monetary policy stance is appropriate in the context of a closing output gap.
- If adverse shocks materialize, policy response could be a combination of:
- Use of available fiscal and monetary policy space.
- Exchange rate flexibility.
Financial sector soundness
- The financial sector is stable.
- Banks are well capitalized, profitability has been maintained and asset quality is sound.
- Vulnerabilities noted:
- Household debt is high compared to peers.
- The real estate sector represents a vulnerability.
- The authorities’ close monitoring of these risks is welcome.
Governance and institutional reforms
- Authorities have made progress in governance reforms, including by launching the National Anti-Corruption Plan.
- Important to sustain momentum and anchor reforms in appropriate legislation.
Structural reform priorities to boost productivity and reach high income status
- Priority measures identified:
- (i) continue to promote trade openness;
- (ii) continue to improve the business environment by facilitating SME access to credit;
- (iii) enhance the quality of and access to education;
- (iv) encourage innovation and technology adoption;
- (v) boost female labor force participation.
Concluding remarks
- IMF team thanked officials of the Government of Malaysia and Bank Negara Malaysia, and representatives from think tanks, NGOs, and the private sector for helpful discussions.
- The IMF team noted appreciation for the authorities’ hospitality and looks forward to maintaining a close and productive relationship with Malaysia.
IMF Press Release No. 19/466 — December 17, 2019