IMF Staff Completes the 2025 Article IV Mission to Malaysia
IMF News, December 13, 2024
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Bibliographic details
- Published: December 13, 2024
Mission details
- An IMF team, led by Mr. Masahiro Nozaki, conducted discussions on the 2025 Article IV Consultation with the Malaysian authorities and other stakeholders during December 3-13, 2024.
- End-of-mission statement reflects IMF staff’s preliminary findings; staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
Economic performance and growth outlook
- The Malaysian economy performed strongly in 2024, supported by strong domestic and external demand.
- Growth projections:
- Growth is projected to moderate from 5.0 percent in 2024 to 4.7 percent in 2025.
- Risks to growth:
- Tilted to the downside, mainly due to an uncertain global outlook, including external risks from deeper geoeconomic fragmentation.
- Upside risk from faster-than-envisaged implementation of large investment projects in Malaysia.
Inflation outlook
- Inflation developments:
- Inflation has been stable at about 2 percent (year-on-year) so far in 2024.
- Assuming the implementation of RON95 gasoline subsidy reforms in mid-2025 and tighter labor market conditions, average headline inflation is projected to rise from 2.0 percent in 2024 to 2.6 percent in 2025.
- Risks to inflation:
- Tilted to the upside, including from global commodity price shocks and potential wage pressures from increases in minimum wage and civil servants’ pay.
Fiscal policy findings and recommendations
- Staff welcomes:
- The passage of the Public Finance and Fiscal Responsibility Act (FRA) in 2023.
- The authorities’ commitments to ongoing fiscal consolidation and retargeting of RON95 gasoline subsidies.
- Successful electricity and diesel subsidy reforms.
- Recommendations:
- Continue fiscal consolidation to rebuild fiscal buffers and meet the medium-term deficit and debt targets under the FRA.
- Support consolidation with high-quality, durable revenue and expenditure measures.
- Continue revenue mobilization efforts toward a more broad-based and efficient tax system.
- Further subsidy reforms that build on the successful electricity and diesel subsidy reforms.
- Mitigate the subsequent impact of fiscal reforms on vulnerable households through well-targeted cash transfers.
Monetary policy and exchange rate
- Current stance:
- The current neutral monetary policy stance is appropriate.
- Guidance:
- Monetary policy should remain data-dependent.
- Bank Negara Malaysia (BNM) should stand ready to tighten monetary policy if upside inflation risks materialize.
- Continuing to maintain exchange rate flexibility is essential.
Financial sector assessment
- Overall soundness:
- Malaysia’s financial sector remains sound.
- Banks’ capital and liquidity positions are robust.
- Risks and vulnerabilities:
- Credit growth, corporate and household balance sheets, and real estate markets would not pose systemic risks at this juncture.
- Continued vigilance warranted against:
- Pockets of more highly leveraged borrowers.
- Interlinkages between banks and non-bank financial institutions.
- Climate and cyber risks.
- Spillover risks from these areas remain contained.
Structural reforms, social protection, and other priorities
- Structural reform agenda:
- The government’s structural reform plans under the Economy MADANI Framework are appropriately focused.
- Timely implementation of bold structural reforms is essential to enhance productivity and inclusive growth.
- Social safety nets and digital initiatives:
- Strengthen social safety nets, including through developing the Pangkalan Data Utama (PADU) digital registry.
- The subsequent impact of fiscal reforms on vulnerable households should be mitigated with well-targeted cash transfers.
- Climate and technology readiness:
- Further efforts warranted to facilitate Malaysia’s transition towards net-zero emissions and to enhance readiness for Artificial Intelligence.
- Governance:
- Staff welcomes ongoing efforts to strengthen governance and the anti-corruption framework.
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 for productive discussions.
- Staff view: Malaysia’s strong economic performance provides a window of opportunity to advance its ambitious reform agenda; there is a need to rebuild fiscal buffers, augment growth potential, and strengthen social protection while preserving macroeconomic and financial stability.
IMF Communications Department press release, December 13, 2024.