IMF Staff Completes 2022 Article IV Mission with Malaysia

February 13, 2022

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

  • Malaysia’s economy is set for a gradual recovery, with real GDP growth at 3.1 percent in 2021 and projected to accelerate to about 5 ¾ percent in 2022, thanks to the authorities’ impressive vaccine rollout and swift implementation of economic policy support measures. The recovery nevertheless remains uneven, with sizeable economic slack, and substantial medium-term pandemic-related risks.
  • The IMF team recommends additional near-term targeted fiscal support towards vulnerable and hard-hit segments of the economy and productive investments. The near-term support should be combined with a medium-term fiscal consolidation plan, underpinned by budgetary reforms, to rebuild buffers and safeguard sustainability. The accommodative monetary policy stance is appropriate. Financial sector support measures should continue to be more targeted and unwound as the recovery becomes entrenched.
  • Coordinated and targeted structural reform policies would help address long-standing structural challenges including the need to strengthen social safety nets, limit economic scarring, and enhance economic resilience.

Washington, DC – February 13, 2022: An International Monetary Fund (IMF) team, led by Mr. Lamin Leigh, conducted discussions via virtual meetings for the 2022 Article IV Consultation with Malaysia during January 24-February 9, 2022. At the conclusion of the discussions, Mr. Leigh issued the following statement:

“The Malaysian economy is set to recover gradually from the Covid-19 downturn. The severe Delta outbreak in the middle of 2021 prompted strict nationwide containment measures, which significantly lowered real GDP growth to 3.1 percent. The export-oriented manufacturing sector underpinned growth, while agriculture and contact-intensive sectors remained hard hit. A more severe downturn was averted thanks to the swift, substantial, and multi-pronged pandemic policy response targeted to support affected households and businesses.

“Growth in 2022 is projected at about 5 ¾ percent driven by pent-up domestic demand and continued strong external demand. However, the pandemic crisis is set to leave implications that could linger over the medium to long run. The recovery will likely be uneven, with output remaining well below its potential level. Inflation is projected to stabilize at about 2½ percent despite transitory supply-chain challenges. Downside risks cloud the recovery outlook, notably a possible re-intensification of the pandemic with vaccine-resistant variants.

“In the near term, fiscal policy should continue to be nimble and increasingly targeted, with a focus on further buttressing the recovery, minimizing economic scarring, protecting the vulnerable segments of the population, and scaling up productive investments, in line with the authorities’ spending priorities.

“The authorities’ commitment to medium-term fiscal consolidation is welcome. A credible, specific, growth-friendly, and clearly communicated consolidation strategy should be implemented once the recovery is entrenched to rebuild fiscal buffers, preserve fiscal sustainability, and reduce fiscal risks, supported by robust fiscal governance practices.

“The current accommodative monetary policy stance is appropriate. Looking ahead, monetary policy should remain data dependent. As financial sector support measures have become more targeted and are progressively being unwound alongside the economic recovery, close attention should be provided to financial stability risks. Exchange rate flexibility should be the first line of defense against volatile capital flows.

“Coordinated and targeted structural reform policies would help address long-standing structural challenges, limit economic scarring, boost productivity, and address inequality and meet the aspiration of a “Prosperous, Inclusive and Sustainable Malaysia.” The IMF team supports the thrust of the Twelfth Malaysia Plan, importantly boosting the digital economy, elevating the level of education, enhancing broad-based productivity drivers, accelerating governance and anti-corruption reforms, reinvigorating the tourism sector, and adopting comprehensive climate change policies.

“The IMF team would like to thank the officials of the Government of Malaysia and Bank Negara Malaysia, other public institutions, as well as representatives from the private sector, and civil society for helpful discussions. We look forward to maintaining a close and productive relationship with Malaysia. The IMF team will prepare a Staff Report and expects to present it to the Executive Board of the IMF in April 2022.”

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