## IMF Executive Board Concludes 2023 Article IV Consultation with Malaysia _IMF News, June 2, 2023_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2023 Article IV Consultation with Malaysia](https://www.imf.org/en/news/articles/2023/05/31/pr23191-malaysia-imf-executive-board-concludes-2023-article-iv-consultation-with-malaysia) ## Other formats - [Markdown version](/en/news/articles/2023/05/31/pr23191-malaysia-imf-executive-board-concludes-2023-article-iv-consultation-with-malaysia/index.md) - [Structured JSON version](/en/news/articles/2023/05/31/pr23191-malaysia-imf-executive-board-concludes-2023-article-iv-consultation-with-malaysia/index.json) - [Bundle manifest](/en/news/articles/2023/05/31/pr23191-malaysia-imf-executive-board-concludes-2023-article-iv-consultation-with-malaysia/bundle-manifest.json) ## Bibliographic details - Published: June 2, 2023 --- ### Post‑pandemic recovery and growth - Growth reached 8.7 percent in 2022 driven by pent-up domestic demand following the reopening of the economy in April 2022 and strong export performance. - Recovery remains uneven: agriculture, mining, and particularly construction sectors remain below pre-pandemic levels. - Inequality has risen during COVID-19. - Near-term growth projection: Growth is projected to moderate to 4.5 percent in 2023 reflecting largely the global external headwinds. - Real GDP (percent change) series (selected): - 2018: 4.8 - 2019: 4.4 - 2020: -5.5 - 2021: 3.1 - 2022: 8.7 - 2023 (Proj.): 4.5 - 2024 (Proj.): 3.9 ### Inflation and monetary policy - Inflation was broad-based and elevated at 3.4 percent for 2022, despite recent signs of moderation. - Inflation expectations remained well anchored. - Inflation projection: Inflation is projected to remain elevated at 3.3 percent in 2023, with likely persistence in core inflation amid a positive output gap and evidence of a build-up of demand-side pressures. - Bank Negara Malaysia (BNM) actions: BNM increased the overnight policy rate (OPR) four times since May 2022 by a total of 100 bps to 2.75 percent and paused the tightening thus far in 2023. - Executive Directors' view: Monetary policy should tighten further to bring the stance to a neutral position; BNM should continue to clearly communicate the rationale for its policy decisions. - Overnight policy rate (in percent) (selected history): - 2018: 3.25 - 2019: 3.00 - 2020: 1.75 - 2022–2023: OPR increased to 2.75 percent (four hikes totaling 100 bps since May 2022) ### Fiscal policy, consolidation, and revenue - 2023 Budget stance: Appropriately contractionary, targeting a decline in the overall deficit from 5.6 percent of GDP in 2022 to 5.0 percent in 2023, and down to 3.2 percent of GDP by 2025. - Fiscal recommendation: Gradual fiscal consolidation is appropriate but should be credibly underpinned by high-quality and durable measures; staff advise a more significant consolidation over the medium term to put debt on a firm downward path. - Fiscal Responsibility Act (FRA): Progress in finalizing the FRA is welcomed as a major reform expected to enhance governance and transparency and improve accountability and fiscal responsibility. - Urgent priority: Developing a medium-term revenue strategy, especially given significant spending needs under the 12th Malaysia Plan (12MP). - Subsidies and safety nets: Phased and transparently communicated subsidy reform is overdue, alongside social safety nets reforms, to help enhance external rebalancing. - Fiscal sector (in percent of GDP) key figures: - Federal government overall balance: - 2018: -3.7 - 2019: -3.4 - 2020: -6.2 - 2021: -6.3 - 2022: -5.6 - 2023 (Est.): -4.6 - Revenue: - 2018: 16.1 - 2019: 17.5 - 2020: 15.9 - 2021: 15.1 - 2022: 16.5 - 2023 (Est.): 14.2 - Expenditure and net lending (selected): - 2018: 19.8 - 2019: 20.9 - 2020: 22.1 - 2021: 21.4 - 2022: 22.0 - 2023 (Est.): 20.1 - General government debt (selected): - 2018: 55.6 - 2019: 57.1 - 2020: 67.7 - 2021: 69.3 - 2022: 65.7 - 2023 (Est.): 66.8 ### External sector and outlook - Current account: Over the medium term, the current account surplus is projected to widen as pandemic-related travel restrictions are lifted and as imports moderate. - External position: Malaysia’s 2022 external position is preliminarily assessed to be stronger than warranted by fundamentals and desired policies. - Balance of payments (in billions of U.S. dollars) — selected: - Current account balance (US$ billions): - 2018: 12.8 - 2019: 14.1 - 2020: 10.7 - 2021: 12.1 - 2022: 13.2 - 2023 (Proj.): 14.6 - 2024 (Proj.): 16.4 - 2025 (Proj.): 18.0 - Goods balance (US$ billions) (selected): - 2021: 41.2 - 2022: 38.5 - 2023 (Proj.): 38.7 - Services balance and income balance show persistent deficits (details in staff tables). - Gross official reserves (US$ billions) (selected projections): - 2022: 114.7 - 2023 (Proj.): 124.0 - 2024 (Proj.): 129.0 - 2025 (Proj.): 137.2 - 2026 (Proj.): 144.9 - 2027 (Proj.): 151.6 - 2028 (Proj.): 158.3 - Total external debt (US$ billions) (selected): - 2022: 259.2 - 2023 (Proj.): 276.5 - 2024 (Proj.): 290.5 - 2025 (Proj.): 307.5 - 2026 (Proj.): 324.3 - 2027 (Proj.): 338.4 - 2028 (Proj.): 352.4 ### Financial sector stability and risks - Authorities’ commitment to safeguarding financial stability is welcome given emerging risks. - Enhanced monitoring recommended, especially of highly leveraged entities and non-bank financial institutions, given increased risks from rising interest rates, tighter financial conditions, exchange rate depreciation, and weaker expected growth. - Recommendation to expand the macroprudential toolkit to support financial stability efforts. - Assessment: The Malaysian financial sector is well-equipped to navigate potential increases in volatility and global risk aversion; there are no broad-based stability concerns. ### Downside risks and external vulnerabilities - Downside risks are mostly external and cloud the near-term outlook. - External risks highlighted: - Possibility of an abrupt global slowdown or recession with a spike in global risk premia, capital outflows and sudden stop risks. - Geo-economic fragmentation and geopolitical tensions that could reconfigure trade, disrupt supply chains, and raise input costs. - Staff urge authorities to stand ready to manage downside risks and policy trade-offs, if and when warranted. ### Structural reforms and governance - The authorities’ intentions under the 12MP to credibly enhance economic resilience, move toward net zero greenhouse gas emissions, and promote inclusive growth are welcomed. - The start of the new government provides a timely opportunity to advance a concerted reform agenda. - Recommended governance and anti-corruption reforms: Implement strategies outlined in the National Anti-Corruption Plan to strengthen public finance management and improve public sector service delivery. ### Selected country statistics (levels and rates) - Nominal GDP (2022): US$407.9 billion - Population (2022): 32.7 million - GDP per capita (2022, current prices): US$12,493 - Poverty rate (2019, national poverty line): 0.2 percent - Unemployment rate (2022, period average): 3.8 percent - Adult literacy rate (2019): 95.0 percent - Main domestic goods exports (share of total domestic exports, 2021): - Machinery and Transport Equipment: 39.2 percent - Miscellaneous Manufactured Articles: 16.6 percent - Manufactured Goods: 10.8 percent *IMF Executive Board Concludes 2023 Article IV Consultation with Malaysia, June 1, 2023.* --- ## References - [Malaysia and the IMF](http://www.imf.org/external/country/MYS/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2023/05/31/pr23191-malaysia-imf-executive-board-concludes-2023-article-iv-consultation-with-malaysia_