IMF Executive Board Concludes 2020 Article IV Consultation with Malaysia
IMF News, February 27, 2020
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- Published: February 27, 2020
Economic performance and recent developments
- Growth has averaged just under 5 percent over the past 5 years.
- Real GDP growth is estimated at 4.5 percent in 2019, driven by domestic demand.
- Headline inflation moderated from an average of 1 percent in 2018 to 0.7 percent in 2019.
- Factors affecting inflation: declining global oil prices, moderating wage growth, and the impact of replacing the GST with the smaller-base SST in 2018.
- Credit growth is moderating.
- Current account surplus is estimated to have increased to 3.5 percent of GDP in 2019, driven by a temporary decline in capital imports and an improvement in the primary income account.
Outlook and projections
- Growth is expected to remain stable in 2020 and to rebound in the medium term.
- Domestic demand will be the main driver of growth, supported by stable employment and income growth.
- Private investment is projected to gradually pick up as the business environment improves and external uncertainties dissipate.
- Headline inflation is expected to increase to slightly over 2 percent as domestic demand rises, the base effect of the consumption tax regime change vanishes, and fuel subsidies become targeted.
- Current account surplus is expected to narrow to 2.7 percent of GDP as capital imports resume.
- Over the medium term:
- Growth should converge to potential (just below 5 percent).
- Inflation should remain under control.
- Current account surplus should continue to moderate.
Risks to the outlook
- Downside risks predominate on balance:
- Vulnerability to escalating trade actions and weaker-than-expected trading partners’ growth given Malaysia’s highly open economy.
- An abrupt deterioration in market sentiment towards emerging markets could lead to tighter financial conditions.
- Domestic contingent liabilities could pose fiscal risks.
- A sharp drop in real estate prices or deterioration in household debt service ability could affect growth and financial stability.
- Domestic policy uncertainty could reduce investment.
- Upside risk:
- A durable truce following the phase-one deal between the US and China could be an upside.
Executive Board assessment and policy recommendations
- Directors welcomed stability and progress on the reform agenda; encouraged continued commitment to governance and structural reforms.
- Fiscal policy:
- Continue to focus on a medium-term fiscal consolidation plan while safeguarding growth and financial stability.
- Identify well-defined spending and revenue measures to support consolidation, including in the context of the upcoming medium-term revenue strategy preparation.
- Push ahead with adoption of a Fiscal Responsibility Act.
- Improve debt management, public procurement, and the public investment framework.
- Monetary and exchange rate policy:
- Supported a broadly neutral monetary policy stance, given a closing output gap and broadly neutral financial conditions.
- Monetary policy should remain data dependent.
- Commended commitment to exchange rate flexibility and encouraged further efforts to deepen FX markets to enhance the exchange rate’s role as a shock absorber.
- Advise continued review of FX market measures and consider gradual phasing out of such measures.
- Financial sector:
- Agreed the financial sector is stable; profitability, capitalization and asset quality of banks are sound.
- Noted household debt is high compared to peers, with pockets of vulnerability among lower-income groups.
- Advised close monitoring of risks in the real estate and household sectors.
- Further enhance the macroprudential toolkit.
- Commended efforts to strengthen financial literacy and manage cyber risks and climate change risks to the financial sector.
- Governance and anti-corruption:
- Commended progress in governance reforms and stressed the importance of sustaining momentum and anchoring reforms in legislation.
- Priorities: secure independence of anti-corruption institutions, freedom of information, establish an asset declaration system.
- Further strengthen the AML/CFT framework.
- Structural reforms to raise investment and productivity:
- Priority actions: enhance the business environment and improve access to credit for SMEs; promote trade openness; enhance the quality of and access to education; encourage innovation, including through digitalization; boost female labor participation.
- Raising productivity is important to achieve high-income status and inclusive growth and to address external imbalances over the medium term.
Key statistics and selected indicators (highlights)
- Nominal GDP (2019): US$364 billion
- Population (2018): 32.4 million
- GDP per capita (2019, current prices): US$11,173
- Poverty rate (2017, national poverty line): 0.4 percent
- Unemployment rate (2019): 3.4 percent
- Adult literacy rate (2018): 95.9 percent
- Main goods exports (share in total, 2018): electrical & electronics (37.7 percent), commodities (15.6 percent), and petroleum products (7.5 percent).
- Selected series (est./proj. where shown):
- Real GDP (percent change): 2015: 5.0; 2016: 4.4; 2017: 5.7; 2018: 4.7; 2019: 4.5; 2020: 4.9
- Total domestic demand 1/: 2015: 5.8; 2016: 4.8; 2017: 6.5; 2018: 4.3; 2019: 3.4; 2020: 5.6; 2021: 6.3
- Private consumption: 2015: 5.9; 2016: 6.9; 2017: 8.0; 2018: 7.0; 2019: 6.2; 2020: 5.4
- Net exports (contribution to growth, percentage points): 2015: -0.3; 2016: 0.0; 2017: 0.8; 2018: 1.4; 2019: -0.7; 2020: -0.9
- Gross domestic investment (in percent of GDP): 2015: 25.4; 2016: 26.0; 2017: 25.6; 2018: 23.6; 2019: 22.0; 2020: 22.1; 2021: 22.9
- Gross national saving (in percent of GDP): 2015: 28.4; 2016: 25.7; 2017: 25.5; 2018: 24.8
- Federal government overall balance (in percent of GDP) 2/: 2015: -3.2; 2016: -3.1; 2017: -2.9; 2018: -3.7; 2019: -3.4; 2020: -3.0
- Revenue (in percent of GDP): 2015: 18.6; 2016: 17.0; 2017: 16.1; 2018: 17.4; 2019: 15.1
- Expenditure and net lending (in percent of GDP): 2015: 21.8; 2016: 20.1; 2017: 19.0; 2018: 19.8; 2019: 18.3; 2020: 18.1
- Consolidated public sector overall balance 4/: 2015: -7.6; 2016: -3.6; 2017: -4.6; 2018: -6.3; 2019: -5.6; 2020: -5.2
- General government debt 4/ (in percent of GDP): 2015: 57.0; 2016: 55.8; 2017: 54.4; 2018: 55.6; 2019: 57.1; 2020: 56.5
- CPI inflation (annual average, in percent): 2017: 2.1; 2018: 3.7; 2019: 0.7
- CPI inflation (excluding food and energy): 2017: 3.2; 2018: 2.6; 2019: 1.6; 2020: 0.4; 2021: 1.2; 2022: 2.0
- Broad money (percentage change) 5/: 2015: 2.7; 2016: 7.7; 2017: 6.7; 2018: 7.1
- Credit to private sector (percentage change) 5/: 2015: 8.6; 2016: 5.3; 2017: 8.3
- Credit-to-GDP ratio (in percent) 6/ 7/: 2015: 132.5; 2016: 131.9; 2017: 126.7; 2018: 130.1; 2019: 130.9; 2020: 131.4
- Credit-to-GDP gap (in percent) 6/ 7/: 2015: 13.5; 2016: 9.4; 2017: 2.5; 2018: 0.6
- Overnight policy rate (in percent): 2018: 3.25; 2019: 3.00
- Three-month interbank rate (in percent): 2018: 3.8; 2019: 3.6
- Nonfinancial corporate sector debt (in percent of GDP) 8/: 2015: 105.0; 2016: 108.0; 2017: 101.5; 2018: 103.0; 2019: 99.4
- Household debt (in percent of GDP) 8/: 2015: 86.9; 2016: 86.5; 2017: 82.7; 2018: 82.0; 2019: 81.9
- Households financial assets (in percent of GDP) 8/: 2015: 180.1; 2016: 178.6; 2017: 176.5; 2018: 175.8
- House prices (percentage change): 2017: 7.4; 2018: 1.5
- Malaysian ringgit/U.S. dollar (period average): 2015: 3.91; 2016: 4.15; 2017: 4.30; 2018: 4.04; 2019: 4.16
- Real effective exchange rate (percentage change): 2015: -8.5; 2016: -1.6; 2017: 4.1; 2018: -2.0
- Current account balance (in billions of U.S. dollars) 6/: 2015: 7.2; 2016: 8.9; 2017: 12.7; 2018: 10.3; 2019: 7.9
- Current account (in percent of GDP): 2015: 2.8
- Goods balance (in billions of U.S. dollars): 2015: 28.0; 2016: 24.6; 2017: 27.2; 2018: 29.5; 2019: 28.5; 2020: 27.1
- Income balance (in billions of U.S. dollars): 2015: -13.7; 2016: -12.8; 2017: -13.0; 2018: -17.6; 2019: -13.5; 2020: -14.3; 2021: -14.9
- Capital and financial account balance (in billions of U.S. dollars): 2015: -14.5; 2016: -1.1; 2017: 4.6; 2018: -9.2; 2019: -7.4
- Gross official reserves (US$ billions) 6/ 9/: 2015: 95.3; 2016: 94.5; 2017: 102.4; 2018: 101.4; 2019: 103.4; 2020: 106.4; 2021: 109.8
- Total external debt (in billions of U.S. dollars) 6/ 9/: 2015: 195.0; 2016: 203.8; 2017: 218.8; 2018: 223.8; 2019: 227.0; 2020: 224.7; 2021: 225.4
- Debt service ratio (in percent of exports of goods and services) 10/: 2015: 21.5; 2016: 23.4; 2017: 14.0; 2018: 10.6; 2019: 10.9; 2020: 10.7; 2021: 10.4
- Memorandum: Nominal GDP (in billions of ringgit): 2015: 1,177; 2016: 1,250; 2017: 1,372; 2018: 1,447; 2019: 1,516; 2020: 1,617; 2021: 1,731
Source: IMF press release "IMF Executive Board Concludes 2020 Article IV Consultation with Malaysia", February 27, 2020.
