IMF Executive Board Concludes 2021 Article IV Consultation with Malaysia

IMF News, March 17, 2021

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Published: March 17, 2021

Overview and 2020 impact

Malaysia’s economy entered the pandemic from a strong position but has nevertheless been hit very hard.
GDP declined by an estimated 6 percent in 2020 as private investment and consumption, which had been the main drivers of growth in recent years, decelerated sharply.
Unemployment reached a historic high in May 2020.
Inflation has been subdued.
The global risk-off episode in March 2020 triggered capital outflows from EMs such as Malaysia, but a swift and large global policy response helped stabilize markets, and inflows resumed starting late April.
In Malaysia, a strong fiscal, monetary and financial policy response has helped cushion the economic shock from the pandemic and ensure financial stability.
The current account registered a surplus due to both increased pandemic-related external demand for health-related and electronic equipment and weak imports.

2021–25 Outlook and projections

The Malaysian economy is set to recover in 2021, with growth projected at 6.5 percent, driven by a strong recovery in manufacturing and construction.
The recovery is expected to be uneven across sectors, resting on an improvement in both domestic and external demand.
Inflation would recover to 2 percent.
The current account surplus is on course to decline as demand for pandemic-related products starts receding and the rebound in domestic demand raises imports.
Downside risks include:
- An intensification or protracted spread of the virus prompting tighter health and physical distancing measures with negative impact on growth.
- Escalating trade tensions and weaker-than-expected growth in trading partners.
- Domestic policy uncertainty dampening business confidence and investment.
Upside scenario:
- Faster-than-expected deployment of COVID-19 vaccines could raise growth.

Executive Board Assessment and policy guidance

Directors welcomed the Malaysian authorities’ well-coordinated policy response to the pandemic and sizable buffers that helped mitigate the macro-financial impact of the crisis.
Directors observed that a strong recovery in 2021 remains subject to considerable downside risks and noted that macroeconomic policies should remain supportive until the recovery is fully entrenched.
Fiscal policy:
- Directors welcomed the authorities’ commitment to fiscal reform and medium-term consolidation.
- They noted that spending rationalization and revenue-increasing measures will be necessary to help rebuild fiscal buffers once the recovery is fully cemented.
- Directors urged the authorities to initiate preparations for such measures and noted that adoption of the Fiscal Responsibility Act would help better anchor public finances.
- They encouraged the authorities to improve efficiency and coverage of the social protection system.
Monetary and external sector:
- Directors supported the accommodative monetary policy stance.
- They welcomed Malaysia’s continued efforts to deepen domestic FX markets through expanded availability of hedging instruments and other initiatives.
- They encouraged the authorities to continue allowing the exchange rate to cushion shocks to the economy.
- Some Directors emphasized that existing capital flow measures should be phased out over time with due regard to market conditions.
Financial sector and structural reforms:
- Directors agreed that the banking system remains sound but encouraged supervisory authorities to remain alert to deterioration in banks’ asset quality in the near term.
- They called for close monitoring of the high level of household debt as loan moratoria are phased out.
- Directors welcomed the authorities’ enhancements to the debt resolution framework and their focus on inclusion and climate change in the context of financial-structural reforms.
- Directors welcomed the authorities’ commitment to the structural reform agenda, including upgrading the digital infrastructure and greening the economy.
- They called for policies to strengthen social safety nets and encourage private investment and productivity growth, which would also help with external rebalancing.
- Directors emphasized the need for further progress on governance reforms and welcomed the authorities’ commitment to transparency, including regarding the COVID-19 related spending.
- They encouraged follow-through on initiatives outlined in the National Anti-Corruption Plan.
- Directors cautioned that reforms delayed by the pandemic and the change in government should resume, including inter alia legislative initiatives underpinning governance reforms.
External position:
- Directors took note of the staff’s assessment that Malaysia’s external position is stronger than warranted by economic fundamentals and desirable policies.

Key statistics and selected indicators (2016–25)

Nominal GDP (2019): US$364.7 billion
Population (2019): 32.5 million
GDP per capita (2019, current prices): US$11,213
Poverty rate (2019, national poverty line): 5.6 percent
Unemployment rate (2019): 3.3 percent
Adult literacy rate (2018): 95.9 percent
Main goods exports (share in total, 2019, preliminary): electrical & electronics (37.8 percent), commodities (14.7 percent), and petroleum products (7.2 percent).

Selected time-series highlights (Real GDP and related)

Real GDP (percent change): 2016: 4.4; 2017: 5.8; 2018: 4.8; 2019: 4.3; 2020: -6.0; 2021: 6.5; 2022: 6.0; 2023: 5.7; 2024: 5.3; 2025: 5.0
Total domestic demand 1/: 2016: 6.6; 2017: 4.7; 2018: 3.9; 2019: -4.7; 2020: 6.2; 2021: 5.6
Private consumption: 2016: 5.9; 2017: 6.9; 2018: 8.0; 2019: 7.6; 2020: -5.1; 2021: 7.9; 2022: 7.0
Public consumption: 2016: 1.1; 2017: 3.2; 2018: 2.0; 2019: 11.6; 2020: -2.3; 2021: 1.3; 2022: 1.6; 2023: 1.9; 2024: 1.7
Private investment: 2016: 4.5; 2017: 9.0; 2018: -7.3; 2019: 4.0
Public gross fixed capital formation: 2016: -1.0; 2017: 0.3; 2018: -5.0; 2019: -10.9; 2020: -29.9; 2021: 9.2; 2022: -1.6; 2023: 2.3
Net exports (contribution to growth, percentage points): 2016: 0.0; 2017: -0.3; 2018: 0.4; 2019: 0.6; 2020: 1.5; 2021: -0.1; 2022: -0.2

Saving and investment (in percent of GDP)

Gross domestic investment: 2016: 26.0; 2017: 25.5; 2018: 23.9; 2019: 21.0; 2020: 21.5; 2021: 23.8; 2022: 22.6; 2023: 22.4; 2024: 22.3; 2025: 22.2
Gross national saving: 2016: 28.4; 2017: 28.3; 2018: 26.1; 2019: 24.4; 2020: 25.1; 2021: 26.8; 2022: 25.6; 2023: 25.2; 2024: 24.9

Fiscal sector (in percent of GDP) 2/

Federal government overall balance: 2016: -3.1; 2017: -2.9; 2018: -3.7; 2019: -3.4; 2020: -5.4; 2021: -4.6; 2022: -4.3; 2023: -4.2; 2024: -4.3
Revenue: 2016: 17.0; 2017: 16.1; 2018: 17.5; 2019: 15.8; 2020: 15.2; 2021: 15.5
Expenditure and net lending: 2016: 20.1; 2017: 19.0; 2018: 19.8; 2019: 18.5; 2020: 21.8; 2021: 20.6; 2022: 19.9; 2023: 19.7
Federal government non-oil primary balance: 2016: -5.3; 2017: -6.7; 2018: -7.0; 2019: -4.9; 2020: -4.4
Consolidated public sector overall balance 4/: 2016: -3.6; 2017: -8.0; 2018: -6.5; 2019: -5.8; 2020: -5.6; 2021: -5.5
General government debt 4/: 2016: 55.8; 2017: 54.4; 2018: 55.7; 2019: 57.2; 2020: 65.8; 2021: 66.4; 2022: 66.9; 2023: 66.7; 2024: 66.6; 2025: 66.5
Of which: federal government debt: 2016: 51.9; 2017: 50.0; 2018: 51.2; 2019: 52.5; 2020: 61.1; 2021: 61.8; 2022: 62.2; 2023: 62.0; 2024: 61.9; 2025: 61.8

Inflation and unemployment (annual average, in percent)

CPI inflation: 2016: 2.1; 2017: 3.7; 2018: 1.0; 2019: 0.7; 2020: -1.1
CPI inflation (excluding food and energy): 2016: 2.6
Unemployment rate: 2016: 3.5; 2017: 3.4; 2018: 3.3; 2019: 3.8; 2020: 3.6

Macrofinancial variables (end of period)

Broad money (percentage change) 5/: 2016: 2.7; 2017: 7.7; 2018: 7.8; 2019: 7.5
Credit to private sector (percentage change) 5/: 2016: 5.4; 2017: 8.3; 2018: 7.3
Credit-to-GDP ratio (in percent) 6/ 7/: 2016: 131.9; 2017: 126.6; 2018: 130.1; 2019: 130.8; 2020: 142.8; 2021: 142.7; 2022: 143.9
Overnight policy rate (in percent): 2016: 3.00; 2017: 3.25; 2018: 1.75
Nonfinancial corporate sector debt (in percent of GDP) 8/: 2016: 108.0; 2017: 101.5; 2018: 102.7; 2019: 99.4; 2020: 109.0
Nonfinancial corporate sector debt issuance (in percent of GDP): 2016: 3.1; 2017: 1.8
Household debt (in percent of GDP) 8/: 2016: 86.5; 2017: 82.6; 2018: 82.0; 2019: 82.9; 2020: 87.5
Household financial assets (in percent of GDP) 8/: 2016: 178.6; 2017: 176.4; 2018: 175.7; 2019: 179.2; 2020: 190.0
House prices (percentage change): 2016: 7.1; 2017: 2.2

Exchange rates and external sector

Malaysian ringgit/U.S. dollar (period average): 2016: 4.15; 2017: 4.30; 2018: 4.04; 2019: 4.14; 2020: 4.18
Real effective exchange rate (percentage change): 2016: 4.1; 2017: -1.4; 2018: -2.0

Balance of payments (in billions of U.S. dollars) 6/

Current account balance: 2016: 7.2; 2017: 8.9; 2018: 12.3; 2019: 12.6; 2020: 11.5; 2021: 12.2; 2022: 12.8; 2023: 13.5; 2024: 14.0
(In percent of GDP): 2016: 2.8; 2017: 3.0; 2018: 2.9
Goods balance: 2016: 24.6; 2017: 27.2; 2018: 29.8; 2019: 32.4; 2020: 37.0; 2021: 34.0; 2022: 32.5; 2023: 32.8
Services balance: 2016: -2.6; 2017: -11.5; 2018: -15.2; 2019: -6.9; 2020: -5.9
Income balance: 2016: -12.8; 2017: -13.0; 2018: -16.1; 2019: -14.9; 2020: -8.4; 2021: -10.3; 2022: -14.3; 2023: -14.0; 2024: -12.9
Capital and financial account balance: 2016: -8.1; 2017: -11.9; 2018: -9.8; 2019: -10.1; 2020: -9.9; 2021: -12.1
Of which: Direct investment: 2016: 2.5; 2017: -0.5; 2018: 4.9; 2019: 4.2
Errors and omissions: 2016: -4.0; 2017: -8.9; 2018: -2.2
Overall balance: 2016: 1.4; 2017: -1.2

Reserves and external debt

Gross official reserves (US$ billions) 6/ 9/: 2016: 94.5; 2017: 102.4; 2018: 101.4; 2019: 103.6; 2020: 107.6; 2021: 108.1; 2022: 110.2; 2023: 108.9; 2024: 112.6; 2025: 114.5
(In months of following year's imports of goods and nonfactor services): 2016: 5.5; 2017: 6.7; 2018: 4.6
(In percent of short-term debt by original maturity): 2016: 112.2; 2017: 117.8; 2018: 103.5; 2019: 108.3; 2020: 109.5; 2021: 111.0; 2022: 118.4; 2023: 131.4; 2024: 145.8; 2025: 156.5
(In percent of short-term debt by remaining maturity): 2016: 83.2; 2017: 93.7; 2018: 84.7; 2019: 86.9; 2020: 88.0; 2021: 92.7; 2022: 98.7; 2023: 105.0
Total external debt (in billions of U.S. dollars) 6/ 9/: 2016: 203.8; 2017: 218.8; 2018: 223.3; 2019: 231.1; 2020: 237.9; 2021: 243.4; 2022: 241.6; 2023: 241.2; 2024: 238.4; 2025: 245.8
Of which: short-term (in percent of total, original maturity): 2016: 67.7; 2017: 68.6; 2018: 62.3; 2019: 63.4; 2020: 69.3; 2021: 63.8; 2022: 58.7; 2023: 54.0; 2024: 49.6; 2025: 47.6
Of which: short-term (in percent of total, remaining maturity): 2016: 41.3; 2017: 39.7; 2018: 43.9; 2019: 41.4; 2020: 40.8; 2021: 40.0; 2022: 38.5; 2023: 34.4
Debt service ratio 6/ (In percent of exports of goods and services): 2016: 23.4; 2017: 10.6; 2018: 11.0; 2019: 13.7; 2020: 12.5; 2021: 11.2; 2022: 10.8
Debt service ratio 6/ (In percent of exports of goods and nonfactor services): 2016: 24.8; 2017: 14.8; 2018: 11.7; 2019: 14.5; 2020: 13.2; 2021: 11.8; 2022: 11.4

Memorandum items

Nominal GDP (in billions of ringgit): 2016: 1,250; 2017: 1,372; 2018: 1,447; 2019: 1,511; 2020: 1,439; 2021: 1,561; 2022: 1,674; 2023: 1,804; 2024: 1,940; 2025: 2,085

Sources: Data provided by the authorities; CEIC Data Co. Ltd.; World Bank; UNESCO; and IMF, Integrated Monetary Database and staff estimates.

IMF Communications Department press release, March 17, 2021.