IMF Staff Completes 2023 Article IV Mission to Malaysia
IMF News, March 21, 2023
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- Published: March 21, 2023
Mission summary and context
- IMF team led by Mr. Lamin Leigh conducted discussions for the 2023 Article IV Consultation with Malaysian authorities and other stakeholders during March 8-20, 2023.
- Press Release No. 23/80.
- End-of-Mission press releases convey preliminary findings after a visit; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Key findings
- Growth reached 8.7 percent in 2022, driven by pent-up domestic demand following the reopening of the economy in April 2022 and resilient export performance.
- Staff estimates the output gap to have closed in 2022.
- Recovery remains uneven: agriculture, mining, and particularly construction sectors remain below pre-pandemic levels.
- Headline inflation was on the rise for most of 2022, reaching 3.3 percent for the year, despite record spending on subsidies.
- Inflation expectations remained well anchored.
Projections and risks
- Growth is projected to moderate to about 4½ percent in 2023, driven by external headwinds.
- Inflation is projected to remain elevated at about 3¼ percent, with likely persistence in core inflation amid a positive output gap and evidence of a build-up of demand-side pressures.
- Downside risks are mostly external, including:
- an abrupt global slowdown; and
- larger than envisaged monetary policy tightening by major central banks.
Policy recommendations
- Fiscal policy
- Implement a gradual fiscal consolidation strategy, as set out in the 2023 Budget, to rebuild buffers, put debt on a downward path, and reduce fiscal risks.
- Fiscal consolidation should be credibly underpinned by high-quality and durable revenue measures to create space for critical investment needs and targeted transfers to low-income households and to buttress market confidence.
- Welcome authorities’ commitment to fiscal reforms, including:
- upcoming tabling of the Fiscal Responsibility Act;
- planned subsidy reform; and
- plans to develop a medium-term revenue strategy.
- Monetary policy and financial stability
- Monetary policy should tighten further to bring the currently accommodative stance to neutral to keep inflation contained and expectations anchored.
- Continued clear communication of the rationale for Bank Negara Malaysia policy decisions is critical in a rapidly evolving and highly uncertain environment.
- Enhance monitoring of household and corporate balance sheets in the current environment of higher interest rates and weaker growth momentum.
- Expand the macroprudential toolkit to support these efforts.
- Exchange rate flexibility should be the first line of defense against external shocks.
- Structural reforms
- Forge ahead with implementing the concerted policy agenda set out in the Twelfth Malaysia Plan and the 2023 Budget, focusing on:
- enhancing broad-based productivity drivers and inclusive growth;
- addressing climate change;
- promoting digitalization;
- enhancing governance; and
- strengthening anti-corruption reforms.
Closing remarks
- The IMF team thanked officials of the Government of Malaysia and Bank Negara Malaysia, other public institutions, and representatives from the private sector and civil society for productive discussions.
IMF Staff Completes 2023 Article IV Mission to Malaysia — Press Release No. 23/80, March 20, 2023.