Washington, DC:
An International Monetary Fund (IMF) team, led by Mr. Lamin Leigh,
conducted discussions for the 2023 Article IV Consultation with Malaysian
authorities and other stakeholders during March 8-20, 2023. At the
conclusion of the discussions, Mr. Leigh issued the following statement:
“The Malaysian economy registered a strong recovery in 2022. Growth reached
8.7 percent driven by pent-up domestic demand following the reopening of
the economy in April 2022 and resilient export performance. Staff estimates
the output gap to have closed in 2022. The recovery remains uneven with
agriculture, mining, and particularly construction sectors remaining below
pre-pandemic levels. With record spending on subsidies, headline inflation
did not surge in tandem with global food and commodity prices but was still
on the rise for most of 2022, reaching 3.3 percent for the year. Inflation
expectations remained well anchored.
“Growth is projected to moderate to about 4½ percent in 2023, driven by
external headwinds. Inflation is projected to remain elevated at about 3¼
percent, with likely persistence in core inflation, amid a positive output
gap, and evidence of a build-up of demand-side pressures. Downside risks
are mostly external, including an abrupt global slowdown and larger than
envisaged monetary policy tightening by major central banks.
“A gradual fiscal consolidation strategy, as appropriately set out in the
2023 Budget, is needed to rebuild buffers, put debt on a downward path, and
reduce fiscal risks. It should however be credibly underpinned by
high-quality and durable revenue measures. Those measures would create
space for critical investment needs and for targeted transfers to
low-income households and help buttress market confidence in Malaysia’s
strong fundamentals. The authorities’ commitment to fiscal reforms is
welcome, including the upcoming tabling of the Fiscal Responsibility Act,
the planned subsidy reform, and plans to develop a medium-term revenue
strategy.
“Monetary policy should tighten further to bring the currently
accommodative stance to neutral to keep inflation contained and
expectations anchored. Continued clear communication of the rationale for
the Bank Negara Malaysia policy decisions is critical in a rapidly evolving
and highly uncertain environment. Enhanced monitoring of household and
corporate balance sheets is needed in the current environment of higher
interest rates and weaker growth momentum. Expanding the macroprudential
toolkit should help support these efforts. Exchange rate flexibility should
be the first line of defense against external shocks.
“The time is right to forge ahead with implementing the concerted policy
agenda set out in the Twelfth Malaysia Plan and the 2023 Budget. The plan
is appropriately focused on enhancing broad-based productivity drivers as
well as inclusive growth, addressing climate change, promoting
digitalization, enhancing governance, and strengthening anti-corruption
reforms.
“The IMF team would like to thank the officials of the Government of
Malaysia and Bank Negara Malaysia, other public institutions, as well as
representatives from the private sector, and civil society for productive
discussions.”
