IMF Staff Completes the 2024 Article IV Mission to Malaysia

IMF News, December 15, 2023

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An IMF team, led by Mr. Lamin Leigh, conducted discussions for the 2024 Article IV Consultation with the Malaysian authorities and other stakeholders during December 5-14, 2023.
Press Release No. 23/448.
End-of-Mission press releases convey preliminary findings of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Staff will prepare a report for the IMF's Executive Board based on these findings.

The Malaysian economy "has weathered external headwinds well" with growth drivers shifting to robust domestic demand.
Growth projections:
- 2023: projected to grow at 4 percent.
- 2024: projected to pick up slightly to 4.3 percent, supported by resilient private consumption and investment and a rebound in public spending.
Private consumption remained the main driver of growth throughout 2023, supported by a healthy labor market.
Exports to major trading partners weakened markedly due to subdued external demand and the economic slowdown in China.

Headline and core inflation have been moderating; core inflation has moderated more gradually.
Inflation projections:
- Headline inflation projected at 2.9 percent in 2023.
- Inflation projected to moderate further to 2.7 percent in 2024.
Inflation expectations remained well anchored.
Uncertainties around the inflation outlook remain, including on account of subsidy reform.

A fiscal consolidation path, as set out in the 2024 Budget, would:
- rebuild buffers,
- put debt on a downward path,
- reduce fiscal risks.
Fiscal consolidation should be credibly underpinned by high-quality and durable revenue measures.
Chief among recommended revenue measures: implementing a carefully designed consumption tax to:
- create space for critical investment needs,
- enable targeted transfers to low-income households,
- buttress market confidence in Malaysia’s strong fundamentals.
The authorities’ commitments noted as welcome include:
- the historic tabling of the Fiscal Responsibility Act,
- the ongoing subsidy reform,
- progress on developing a medium-term revenue strategy.

Current stance: broadly neutral monetary policy stance remains appropriate at present.
Recommendation: pursue a tightening bias in the near term in a data-dependent manner to keep inflation contained and expectations anchored.
Rationale for tightening bias:
- still higher than desirable core inflation,
- ongoing, yet uncertain, subsidy reform.
Additional measures:
- enhanced monitoring of household and corporate balance sheets given high interest rates, weaker exchange rate, and lower growth.
- continue exchange rate flexibility as the first line of defense against external shocks.

Implementation of the policy initiatives under the MADANI Economy framework, the mid-term review of the Twelfth Malaysia Plan, and accompanying national strategic plans should accelerate to:
- support medium-term growth,
- achieve high-income status.
Policy priorities noted:
- addressing climate change,
- promoting digitalization,
- enhancing governance and anti-corruption reforms.
Additional priority reforms:
- reforms that would meaningfully lift wages across skill levels,
- reforms that ensure retirement income security.

The IMF team thanked officials of the Government of Malaysia and Bank Negara Malaysia, other public institutions, and private sector representatives for productive discussions.

Press Release No. 23/448 — IMF Communications Department, December 14, 2023.