IMF Executive Board Concludes 2024 Article IV Consultation with Malaysia
IMF News, March 11, 2024
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- Published: March 11, 2024
Overview and near-term outlook
- Executive Board concluded the Article IV consultation on February 21, 2024.
- Growth momentum is slowing from a high base in 2022:
- Advanced estimates: 3.4 percent growth for 2023Q4, down from 8.7 percent in 2022.
- Growth is estimated at about 4 percent in 2023.
- Growth projected to slightly accelerate to 4.3 percent in 2024, supported by resilient private consumption and investment and a rebound in public spending.
- Inflation and disinflation:
- Average inflation fell to 2.5 percent in 2023, down from 3.4 percent in 2022.
- Inflation projected to pick up to 2.9 percent in 2024, pending uncertainty around subsidy reform.
- Current account and external sector:
- Over the medium term, the current account surplus is expected to widen as tourism recovers and improves the services balance.
Macro policies and fiscal outlook
- Monetary policy:
- Bank Negara Malaysia (BNM) increased the overnight policy rate (OPR) five times since May 2022 by a total of 125 bps to 3.0 percent.
- OPR remained unchanged since May 2023; monetary policy stance currently broadly neutral.
- Fiscal policy and targets:
- The 2023 Budget deficit target is expected to be met.
- The 2024 Budget targets a decline in the overall deficit from 5 percent of GDP in 2023 to 4.3 percent in 2024, and down to less than 3 percent of GDP by 2026.
- Directors welcomed enactment of the Public Finance and Fiscal Responsibility Act 2023 and planned fiscal consolidation.
- Directors called for credible and durable revenue mobilization measures and spending prioritization.
- Directors encouraged continuing subsidy reform and considering reintroducing the Goods and Services Tax to help finance pro-poor spending.
Financial sector and macroprudential stance
- Financial soundness and stability:
- Directors welcomed the financial sector’s soundness and the authorities’ commitment to safeguard financial stability.
- Encouraged continued monitoring of highly leveraged households and small firms.
- Welcomed updates to stress-test design to better capture emerging risks.
- Encouraged considering expansion of the macroprudential toolkit in a preventive manner.
- Welcomed strengthening of AML/CFT frameworks and called for continued efforts.
Structural reforms and policy priorities
- Directors commended the authorities’ focused structural reform agenda and urged timely implementation.
- Recommended reform priorities:
- Improve labor market outcomes and increase incomes to contribute to external rebalancing.
- Promote the green transition and digitalization — including carefully leveraging the benefits of Artificial Intelligence.
- Enhance governance and anti-corruption frameworks.
- Preserve pension system sustainability; welcomed authorities’ initiatives on this front.
Executive Board assessment — policy guidance
- Near-term focus:
- Preserve price stability and rebuild buffers.
- Rebuild fiscal buffers through consolidation and credible revenue measures.
- Monetary policy guidance:
- Broadly neutral, data-dependent stance will help safeguard price stability.
- Directors cautioned against prematurely cutting policy rates given upside risks to inflation.
- Exchange rate flexibility and reserve adequacy should be preserved; welcomed measures to further develop FX markets.
- Structural and fiscal trade-offs:
- Consider reintroducing the Goods and Services Tax to finance pro-poor spending while offsetting regressivity.
- Prioritize spending and durable revenue mobilization to support consolidation and development/social needs.
Key statistics and selected economic indicators (high-level)
- Nominal GDP (2022): US$407.0 billion
- Population (2022): 32.7 million
- GDP per capita (2022, current prices): US$12,466
- Poverty rate (2019, national poverty line): 0.2 percent
- Unemployment rate (2022, period average): 3.8 percent
- Adult literacy rate (2019): 95.0 percent
- Main domestic goods exports (share of total domestic exports, 2022):
- Machinery and Transport Equipment: 43.4 percent
- Miscellaneous Manufactured Articles: 10.5 percent
- Manufactured Goods: 8.9 percent
Table 1 — Selected projected aggregates (extract)
- Real GDP (percent change):
- 2020: -5.5
- 2021: 3.3
- 2022: 8.7
- 2023: 4.0
- 2024 (Proj.): 4.3
- 2025 (Proj.): 4.4
- Private consumption (percent change):
- 2020: -3.9
- 2021: 1.9
- 2022: 11.2
- 2023: 7.5
- 2024 (Proj.): 6.1
- Federal government overall balance (in percent of GDP):
- 2020: -6.2
- 2021: -6.4
- 2022: -5.6
- 2023: -5.0
- 2024 (Proj.): -4.2
- Revenue (in percent of GDP):
- 2020: 15.9
- 2021: 15.1
- 2022: 16.4
- 2023: 14.9
- 2024 (Proj.): 14.5
- Expenditure and net lending (in percent of GDP):
- 2020: 22.0
- 2021: 21.5
- 2022: 20.9
- 2023: 19.2
- 2024 (Proj.): 18.8
- General government debt (in percent of GDP):
- 2020: 67.7
- 2021: 69.2
- 2022: 65.6
- 2023: 66.8
- 2024 (Proj.): 66.6
- CPI inflation (annual average):
- 2021: 2.5
- 2022: 3.4
- 2023: 2.5
- 2024 (Proj.): 2.9
- Current account balance (in billions of U.S. dollars):
- 2020: 12.5
- 2021: 10.2
- 2022: 12.2
- 2023: 13.3
- Gross official reserves (US$ billions):
- 2020: 107.6
- 2021: 116.9
- 2022: 114.7
- 2023: 113.5
- 2024 (Proj.): 120.4
- 2025 (Proj.): 131.9
- 2026 (Proj.): 142.6
- Total external debt (in billions of U.S. dollars):
- 2020: 238.8
- 2021: 258.7
- 2022: 259.4
- 2023: 279.9
- 2024 (Proj.): 296.6
- 2025 (Proj.): 318.0
- 2026 (Proj.): 339.0
- Memorandum: Nominal GDP (in billions of ringgit):
- 2020: 1,418
- 2021: 1,549
- 2022: 1,791
- 2023: 1,910
- 2024 (Proj.): 2,061
- 2025 (Proj.): 2,215
- 2026 (Proj.): 2,365
Source: Press Release No. 24/78, IMF, March 10, 2024.