IMF Executive Board Concludes 2022 Article IV Consultation with Malaysia
IMF News, April 28, 2022
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- Published: April 28, 2022
Executive summary and Board assessment
- The Executive Board concluded the Article IV consultation on April 6, 2022, and summarized views on the economic outlook and policy priorities.
- Directors welcomed the gradual recovery supported by an impressive vaccine rollout and multi-pronged policy support, while noting that the recovery remains uneven with substantial downside risks, including from the ongoing pandemic and the war in Ukraine.
- Directors called on the authorities to calibrate macroeconomic policies to the pace of the recovery, with continued targeted policy support in the near term, while preserving policy space to respond to downside risks and accelerating structural reforms.
Recent macroeconomic performance (2020–2021)
- Real GDP growth was limited to about 3 percent in 2021, weighed by the severe Delta outbreak and strict nationwide measures in mid-2021.
- Inflation was contained at about 2½ percent in 2021.
- Sector dynamics:
- Export-oriented manufacturing underpinned growth and remained operative during shutdowns.
- Agricultural sector struggled with prolonged labor shortages due to a lower flow of migrant workers.
- Contact-intensive sectors, including tourism, were hard-hit.
- Policy response:
- Total COVID-related budget spending amounted to RM39 billion (about 2½ percent of GDP) in 2021, more than double the initially budgeted RM17 billion, and above the RM38 billion spent in 2020.
- The federal government deficit reached about 6½ percent of GDP in 2021, higher than the about 5½ deficit foreseen in the 2021 Budget.
- Federal government debt is estimated at 63 percent of GDP, below the domestic debt ceiling of 65 percent of GDP.
- BNM maintained an accommodative monetary policy stance, with its overnight policy rate unchanged at a record low of 1¾ percent through early 2022.
Projections and risks (medium term)
- Growth:
- Growth in 2022 is projected at about 5¾ percent, driven by pent-up domestic demand, high vaccination rates, limited movement restrictions, and continued strong external demand.
- Staff projections (selected years): Real GDP percent change — 2017: 5.8; 2018: 4.8; 2019: 4.4; 2020: -5.6; 2021: 3.1; 2022: 5.7; 2023: 5.0; 2024: 4.5; 2025: 4.0.
- Inflation is projected to stabilize at about 2½ percent despite transitory supply-chain challenges.
- Current account and external flows:
- The current account surplus is expected to narrow gradually over the medium term as consumption and capital-related imports recover and foreign tourism flows gradually pick up.
- Current account balance (in billions of U.S. dollars): 2017: 12.8; 2018: 12.9; 2019: 13.8; 2020: 14.9; 2021: 15.4; 2022: 16.3.
- Risks:
- Downside risks include the ongoing pandemic, potential long-term economic scarring that could drag on potential output, and spillovers from the war in Ukraine.
Fiscal policy, debt, and consolidation
- Directors called for continued targeted fiscal support focused on the vulnerable and hard-hit sectors as the output gap continues to close, followed by gradual fiscal consolidation.
- Authorities’ commitments welcomed:
- A medium-term revenue strategy and the Fiscal Responsibility Act to back fiscal sustainability.
- Fiscal indicators (selected):
- Federal government overall balance (percent of GDP): 2017: -3.7; 2018: -3.4; 2019: -6.2; 2020: -6.4; 2021: -6.1; 2022 (proj): -4.6; 2023 (proj): -4.4; 2024 (proj): -4.2.
- Revenue (percent of GDP): 2017: 16.1; 2018: 17.5; 2019: 15.9; 2020: 14.3; 2021: 14.1; 2022 (proj): 13.6; 2023 (proj): 13.5; 2024 (proj): 13.5.
- Expenditure and net lending (percent of GDP): 2017: 19.0; 2018: 19.8; 2019: 18.4; 2020: 22.1; 2021: 20.7; 2022 (proj): 20.2; 2023 (proj): 18.3; 2024 (proj): 18.0.
- General government debt (percent of GDP): 2017: 54.4; 2018: 55.6; 2019: 57.1; 2020: 67.8; 2021: 69.0; 2022 (proj): 70.6; 2023 (proj): 69.9; 2024 (proj): 69.8.
Monetary policy and financial sector resilience
- Directors welcomed the accommodative monetary policy stance given well-anchored inflation expectations and remaining slack in the economy; they agreed monetary policy should remain data dependent.
- Authorities’ work with the Fund on operationalizing the integrated policy framework (IPF) was welcomed.
- Directors noted the commitment to exchange rate flexibility and encouraged progress in phasing out capital flow measures as market conditions allow.
- Financial sector:
- Directors noted the financial sector remains resilient.
- They welcomed the judicious unwinding of forbearance measures and a progressively more targeted approach to financial support measures.
- Financial sector reforms focused on inclusion, economic transformation, and a sustainable economy were encouraged.
Structural priorities and policy recommendations
- Directors recommended:
- Continued targeted fiscal support for vulnerable households and hard-hit sectors during recovery.
- Gradual fiscal consolidation once recovery strengthens, supported by a medium-term revenue strategy and fiscal rules.
- Data-dependent monetary policy within an accommodative stance and continued exchange rate flexibility.
- Continued progress on financial-sector reforms, unwinding forbearance, and targeted support measures.
- Strengthening social safety nets to support an inclusive recovery and facilitate external rebalancing.
- Accelerating implementation of the 12th Malaysia Plan: boosting labor productivity, enhancing the digital and green economies, and strengthening fiscal governance to minimize pandemic-related scarring and promote inclusive growth and job creation.
- Robust governance and anti-corruption reforms, enhanced AML/CFT framework, and further trade liberalization.
- Adoption and implementation of climate policies to increase adaptive capacity and bolster mitigation efforts.
External position, reserves, and external vulnerabilities
- Staff assessed that Malaysia’s external position is moderately stronger than warranted by economic fundamentals and desirable policies.
- Gross official reserves (US$ billions): 2017: 102.4; 2018: 101.4; 2019: 103.6; 2020: 107.6; 2021: 116.9; 2022 (proj): 130.2; 2023 (proj): 131.7; 2024 (proj): 132.2; 2025 (proj): 133.5; 2026 (proj): 135.0.
- Total external debt (US$ billions): 2017: 218.8; 2018: 223.5; 2019: 231.5; 2020: 238.5; 2021: 256.4; 2022 (proj): 276.6; 2023 (proj): 285.0; 2024 (proj): 306.0; 2025 (proj): 322.5; 2026 (proj): 341.5; 2027 (proj): 363.5.
Key statistics and structural indicators (selected)
- Nominal GDP (2021): US$372.8 billion
- Population (2020): 32.6 million
- GDP per capita (2021, current prices): US$10,350
- Poverty rate (2019, national poverty line): 0.2 percent
- Unemployment rate (2021, end-of-period): 4.2 percent
- Adult literacy rate (2019): 95.0 percent
- Main domestic goods exports (share of total domestic exports, 2021):
- Machinery and Transport Equipment: 39.2 percent
- Miscellaneous Manufactured Articles: 16.6 percent
- Manufactured Goods: 10.8 percent
- Overnight policy rate: 1¾ percent (unchanged through early 2022)
- CPI inflation (recent): about 2½ percent
IMF Communications Department — Press Release No. 22/134 (April 28, 2022).