IMF Executive Board Concludes 2025 Article IV Consultation with Malaysia
IMF News, March 3, 2025
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- Published: March 3, 2025
Economic performance in 2024
- Real GDP growth: economy grew by 5.2 percent (y/y) in the first three quarters of 2024.
- Growth drivers: strong private consumption, buoyant investment, improvements in external demand for electrical and electronic products, and a recovery in tourism.
- Labor market: unemployment rate low at 3.2 percent in 2024Q3.
- Inflation: stable around 2 percent; eased to 1.8 percent in 2024.
- Exchange rate: ringgit appreciated against the U.S. dollar by 2.6 percent in 2024.
- Fiscal consolidation: overall fiscal deficit estimated to have declined from 5.0 percent of GDP in 2023 to the budget target of 4.3 percent of GDP in 2024, supported by subsidy reforms and strengthening of the sales and service tax.
- Policy frameworks: Public Finance and Fiscal Responsibility Act (FRA) enacted in 2023; Economy MADANI Framework focuses on increasing incomes, addressing climate change, promoting digitalization, and enhancing governance.
- Monetary stance: Bank Negara Malaysia (BNM) has kept the Overnight Policy Rate (OPR) unchanged at 3.0 percent since May 2023.
Outlook and Executive Board assessment
- Near-term growth: projected at 4.7 percent in 2025.
- Inflation projection: 2.6 percent in 2025 (on account of anticipated implementation of gasoline subsidy reforms), moderating to 2.3 percent in 2026.
- External position: 2024 position preliminarily assessed to be stronger than the level implied by medium-term fundamentals and desirable policies.
- Risks:
- Downside growth risks (mostly external): deepening geoeconomic fragmentation, a growth slowdown in major trading partners, intensification of geopolitical conflicts.
- Upside growth risks: faster implementation of investment projects.
- Inflation upside risks: global commodity price shocks and potential wage pressures from increases in minimum wage and civil servants’ pay.
Fiscal policy recommendations
- Continue fiscal consolidation to rebuild buffers and achieve medium-term targets under the FRA.
- Staff recommends achieving a small structural primary balance by 2027.
- Subsidies: recommend gradually phasing out remaining fuel subsidies, building on successful subsidy reforms including for electricity and diesel.
- Revenue mobilization: move toward a more broad-based and efficient tax system; reintroducing the GST could help achieve this goal.
- Social protection: mitigate the impact of fiscal reforms on vulnerable households with well-targeted cash transfers.
- Governance: staff welcomes the historic enactment of the FRA and recommends its swift and thorough implementation.
Monetary, exchange rate, and financial sector policy
- Monetary policy: current neutral stance is appropriate; policy should remain data dependent; BNM should stand ready to tighten if upside inflation risks materialize.
- Exchange rate: maintaining exchange rate flexibility is essential.
- Financial stability: systemic risks appear contained; banks’ capital and liquidity positions are robust.
- Vigilance advised on: pockets of highly leveraged borrowers, interlinkages between banks and non-bank financial institutions, climate and cyber risks.
- Macroprudential policy: given strong growth and accommodative financial conditions, consider pre-emptive broadening of the macroprudential policy toolkit.
Structural reforms and policy priorities
- Swift implementation encouraged for structural reform initiatives to enhance productivity and inclusive growth.
- PADU digital registry: ongoing development can help strengthen social safety nets and public service delivery.
- Investment policy: incentives to promote high-growth and high-value industries should be well-targeted and ring-fenced.
- Climate and technology: further efforts warranted toward Malaysia's transition to net-zero emissions and readiness for Artificial Intelligence.
- Governance and anti-corruption: staff welcomes authorities’ efforts to strengthen governance and the anti-corruption framework.
Selected economic and financial indicators (key figures from report)
- Nominal GDP (2023): US$399.7 billion
- Population (2023): 33.4 million
- GDP per capita (2023, current prices): US$11,967
- Poverty rate (2019, national poverty line): 0.2 percent
- Unemployment rate (2023, period average): 3.4 percent
- Adult literacy rate (2019): 95.0 percent
- Main domestic goods exports (share of total domestic exports, 2023): Machinery and Transport Equipment (45.6 percent), Manufactured Goods and Miscellaneous Manufactured Articles (19.0 percent), Mineral Fuels, Lubricants etc. (16.5 percent).
- Projection highlights (selected):
- Real GDP: 5.0 (2024), 4.7 (2025), 4.4 (2026), 4.0 (2027)
- Private investment: 12.0 (2024)
- Gross domestic investment (percent of GDP): 22.5 (2024), 22.6 (2025)
- Gross national saving (percent of GDP): 24.0 (2024), 24.5 (2025), 24.7 (2026)
- Federal government overall balance (percent of GDP): -5.0 (2023), -4.3 (2024), -3.8 (2025)
- Revenue (percent of GDP): 17.3 (2023), 16.5 (2024), 16.2 (2025)
- Expenditure and net lending (percent of GDP): 20.8 (2023), 20.0 (2024), 19.2 (2025)
- Federal government non-oil primary balance (percent of GDP): -6.6 (2023), -4.9 (2024), -4.1 (2025)
- General government debt (percent of GDP): 69.7 (2023), 69.6 (2024), 68.9 (2025)
- CPI inflation, annual average: 1.8 (2024), projected 2.6 (2025), 2.3 (2026)
- Unemployment rate: 3.2 percent (2024Q3)
- Overnight policy rate: 3.00 (end-May 2023 onward)
- Current account balance (US$ billions): 8.7 (2023), 10.2 (2024), 14.3 (2025), 16.1 (2026)
- Gross official reserves (US$ billions): 113.5 (2023), 116.2 (2024), 126.6 (2025), 135.6 (2026)
- Total external debt (US$ billions): 270.6 (2023), 284.6 (2024), 305.1 (2025)
- Nominal GDP (in billions of ringgit): 1,823 (2023), 1,952 (2024), 2,099 (2025), 2,241 (2026)
Source: IMF press release, March 3, 2025.
