{
  "title": "Public Information Notice: IMF Executive Board Concludes 2005 Article IV Consultation with Malaysia",
  "publication": "IMF News, March 20, 2006",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0630",
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  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2006-03-20",
  "sections": [
    {
      "heading": "Background and recent macroeconomic developments",
      "content": "- Date of PIN: March 20, 2006. Executive Board conclusion date: March 13, 2006.\n- 2005 real GDP growth is estimated at 5¼ percent.\n- Economic drivers in 2005:\n  - Buoyant private consumption and recovery in private fixed investment more than offset lower government spending.\n  - Headline inflation rose due to administered price adjustments; core inflation remained subdued.\n- External position and resilience (2005):\n  - Current account is estimated to have exceeded 14 percent of GDP.\n  - Reserves sufficient to cover 6 months of imports and four times short-term external debt by remaining maturity.\n  - Foreign direct investment continued to recover; earlier portfolio inflows were reversed as expectation of exchange rate appreciation receded.\n  - Foreign exchange regulations were eased further.\n- Exchange rate and monetary policy:\n  - Exit from the exchange rate peg on July 21, 2005.\n  - Ringgit cumulative appreciation of 2½ percent against the US dollar since exit.\n  - Bank Negara Malaysia raised its policy interest rate twice by 55 basis points since last November; stance remains accommodative.\n- Fiscal developments (2005):\n  - Federal government deficit likely declined to 3¾ percent of GDP.\n  - Surplus of the consolidated public sector stabilized at about 4 percent of GDP, aided by large nonfinancial enterprises' surpluses from high world oil prices.\n  - Federal government non-oil primary deficit estimated at 7 percent of GDP.\n  - Public sector gross debt expected to have dropped to below 60 percent of GDP at end-2005.\n- Financial sector and structural reforms:\n  - Banking system capital adequacy remained strong; asset quality improved.\n  - New deposit insurance system introduced.\n  - Measures taken to open the financial system to foreign competition.\n  - Corporate sector profitability still weak by historical and regional standards.\n  - Extensive Government-Linked Companies (GLC) reform program aimed at better profitability, performance, and corporate governance.\n  - Investment climate improvements: streamlining business approval procedures and land administration."
    },
    {
      "heading": "Executive Board assessment — main findings and outlook",
      "content": "- Directors commended the authorities for a skillful, pragmatic, and fully owned stance of sound macroeconomic policies and continued structural reforms.\n- Near-term outlook: generally favorable; recovery of private investment and domestic consumption expected to drive broad-based expansion.\n- Main downside risk: effects of continued high oil prices on trading partners' demand for Malaysia's exports.\n- Exchange rate regime exit:\n  - Smooth exit of the ringgit from its peg to the U.S. dollar was welcomed as a vital first step toward greater exchange rate flexibility.\n  - Directors encouraged authorities to utilize the flexibility to facilitate adjustment to structural changes and contribute to an orderly resolution of global imbalances.\n  - Authorities committed to allowing the exchange rate to be determined by economic fundamentals; Bank Negara Malaysia intends to pursue intervention policy aimed at reducing volatility while avoiding sustained one-sided intervention.\n  - Directors asked staff and authorities to continue analyzing the appropriate value of the ringgit and its impact on the economy given inherent imprecision in estimating equilibrium exchange rates.\n- Monetary policy framework:\n  - Price stability should remain the primary objective.\n  - Most Directors noted the focus on using interest rates to achieve price stability has served Malaysia well.\n  - Recent increases in the overnight policy rate were welcomed, along with steps to enhance communication to anchor inflation expectations.\n  - Most Directors felt the current framework is sufficiently flexible for greater exchange rate flexibility provided communication continues to be enhanced, including by publication of a measure of core inflation at the same frequency as monetary policy statements.\n- Fiscal policy and oil revenue management:\n  - Strong fiscal revenues from oil and gas improved consolidated public sector position, but gradual reduction of the federal government deficit is needed.\n  - Directors recommended:\n    - Raising the efficiency of the tax system, including by introducing a revenue-neutral value-added goods and services tax, and streamlining tax incentives.\n    - Phasing out fuel subsidies and replacing them with well-targeted support for the most-affected poor.\n  - Directors welcomed the recent substantial increase in retail fuel prices to reduce budgetary pressures and encourage efficient energy use.\n  - Recommendation to set a medium-term fiscal framework to sustain deficit reduction and safeguard oil and gas wealth.\n  - Consideration recommended for establishing a petroleum fund fully integrated into the budget with clear rules on deposit and withdrawal of hydrocarbon revenues; the fund would help ensure effective oversight of the national oil company.\n- Financial sector policy recommendations:\n  - Financial sector considered sound; decline in nonperforming loans and stronger capital adequacy ratios welcomed.\n  - Continue strengthening financial sector surveillance, especially lending to households and small and medium-size enterprises, and over the growing Islamic banking sector.\n  - Enhanced risk management places domestic banks on stronger footing to compete with foreign banks.\n  - Plans to lift restrictions on foreign participation in the banking sector gradually beginning in 2007 were welcomed.\n- Structural reforms and GLCs:\n  - Importance of deepening structural reforms to sustain private investment recovery, enhance efficiency, and sustain medium-term growth.\n  - Support for authorities' emphasis on enhancing the investment climate, upgrading human capital, and reforming GLCs.\n  - Recommendation to reduce the social obligations and privileges of GLCs to allow them to be run on a fully commercial basis and open new fields for private sector initiatives.\n  - Welcomed efforts to improve governance, public service delivery, and the quality of and access to tertiary education."
    },
    {
      "heading": "Key statistics and projections (selected)",
      "content": "- Real GDP growth: 2005 est. 5.3; 2006 proj. 5.5.\n- Real GDP growth by year: 2000: 8.9; 2001: 0.3; 2002: 4.4; 2003: 5.4; 2004: 7.1; 2005: 5.3; 2006: 5.5.\n- Real domestic demand: 2005: 5.0; 2006 proj.: 5.9.\n- CPI inflation (period average) 2005: 3.1.\n- Gross domestic investment (percent of GDP) 2005: 20.6; 2006 proj.: 20.8.\n- Gross national saving (percent of GDP) 2005: 34.9; 2006 proj.: 35.0.\n- Federal government overall balance (percent of GDP): 2005: -3.7; 2006 proj.: -3.4.\n- Federal government non-oil primary balance (percent of GDP) estimated at -7.0 (series shows values: -6.6, -7.9, -7.0, -6.9).\n- Consolidated public sector overall balance (percent of GDP): 2004: 4.1; 2005: 3.5.\n- Total public sector debt (percent of GDP): 2005: 59.2; 2006 proj.: 57.8.\n- Broad money (M3) percent change 2005: 10.2.\n- Three-month interbank rate (period average, in percent): historical values include 3.2, 3.3, 2.8.\n- Trade balance (USD billions): 2005: 33.2.\n- Exports, f.o.b. (USD billions): 2005: 140.1; 2006 proj.: 152.7.\n- Imports, f.o.b. (USD billions): 2005: 108.6; 2006 proj.: 119.6.\n- Services and income balance (USD billions) 2005: -7.7; 2006 proj.: -7.5.\n- Current account balance (USD billions): 2005: 18.9; 2006 proj.: 20.5.\n- Current account balance (percent of GDP): 2005: 14.3; 2006 proj.: 14.2.\n- Gross official reserves (USD billions): 2005: 85.4.\n- Reserves (in months of following year's imports of GNFS): 2005: 6.0.\n- Reserves (percent of short-term debt) 2005: 413.1; 2006 proj.: 479.5.\n- Total external debt (USD billions): historical and projected values include 52.9, 55.4, 46.9, 51.9, 51.3, 47.2, 44.6, 40.0, 38.2 (table entries).\n- Short-term external debt (percent of total): 2005: 32.3.\n- Debt-service ratio (percent of exports of goods and services): 2005: 4.5.\n- Nominal GDP (in billions of ringgit): 2005: 500; 2006 proj.: 545.\n\nPublic Information Notice No. 06/30 — IMF Executive Board conclusion on the 2005 Article IV consultation with Malaysia.\n\n---\n\n\n References\n\n- Malaysia and the IMF\n- Public Information Notices\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0630"
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    "Published: March 20, 2006",
    "Date of PIN: March 20, 2006. Executive Board conclusion date: March 13, 2006.",
    "2005 real GDP growth is estimated at 5¼ percent.",
    "Economic drivers in 2005:",
    "External position and resilience (2005):",
    "Exchange rate and monetary policy:",
    "Fiscal developments (2005):",
    "Financial sector and structural reforms:",
    "Directors commended the authorities for a skillful, pragmatic, and fully owned stance of sound macroeconomic policies and continued structural reforms.",
    "Near-term outlook: generally favorable; recovery of private investment and domestic consumption expected to drive broad-based expansion.",
    "Main downside risk: effects of continued high oil prices on trading partners' demand for Malaysia's exports.",
    "Exchange rate regime exit:",
    "Monetary policy framework:",
    "Fiscal policy and oil revenue management:",
    "Financial sector policy recommendations:",
    "Structural reforms and GLCs:",
    "Real GDP growth: 2005 est. 5.3; 2006 proj. 5.5.",
    "Real GDP growth by year: 2000: 8.9; 2001: 0.3; 2002: 4.4; 2003: 5.4; 2004: 7.1; 2005: 5.3; 2006: 5.5.",
    "Real domestic demand: 2005: 5.0; 2006 proj.: 5.9.",
    "CPI inflation (period average) 2005: 3.1.",
    "Gross domestic investment (percent of GDP) 2005: 20.6; 2006 proj.: 20.8.",
    "Gross national saving (percent of GDP) 2005: 34.9; 2006 proj.: 35.0.",
    "Federal government overall balance (percent of GDP): 2005: -3.7; 2006 proj.: -3.4.",
    "Federal government non-oil primary balance (percent of GDP) estimated at -7.0 (series shows values: -6.6, -7.9, -7.0, -6.9).",
    "Consolidated public sector overall balance (percent of GDP): 2004: 4.1; 2005: 3.5.",
    "Total public sector debt (percent of GDP): 2005: 59.2; 2006 proj.: 57.8.",
    "Broad money (M3) percent change 2005: 10.2.",
    "Three-month interbank rate (period average, in percent): historical values include 3.2, 3.3, 2.8.",
    "Trade balance (USD billions): 2005: 33.2.",
    "Exports, f.o.b. (USD billions): 2005: 140.1; 2006 proj.: 152.7.",
    "Imports, f.o.b. (USD billions): 2005: 108.6; 2006 proj.: 119.6.",
    "Services and income balance (USD billions) 2005: -7.7; 2006 proj.: -7.5.",
    "Current account balance (USD billions): 2005: 18.9; 2006 proj.: 20.5.",
    "Current account balance (percent of GDP): 2005: 14.3; 2006 proj.: 14.2.",
    "Gross official reserves (USD billions): 2005: 85.4.",
    "Reserves (in months of following year's imports of GNFS): 2005: 6.0.",
    "Reserves (percent of short-term debt) 2005: 413.1; 2006 proj.: 479.5.",
    "Total external debt (USD billions): historical and projected values include 52.9, 55.4, 46.9, 51.9, 51.3, 47.2, 44.6, 40.0, 38.2 (table entries).",
    "Short-term external debt (percent of total): 2005: 32.3.",
    "Debt-service ratio (percent of exports of goods and services): 2005: 4.5.",
    "Nominal GDP (in billions of ringgit): 2005: 500; 2006 proj.: 545.",
    "[Malaysia and the IMF](http://www.imf.org/external/country/MYS/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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