Washington, DC: On February 25, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with Malaysia and endorsed the staff appraisal without a meeting on a lapse-of-time basis.[2]
Malaysia’s economic performance has improved significantly in 2024. The economy grew by 5.2 percent (y/y) in the first three quarters of 2024, supported by strong private consumption, buoyant investment, improvements in external demand for electrical and electronic products, and a recovery in tourism. Labor market conditions have been strong, with the unemployment rate low at 3.2 percent in 2024Q3. Meanwhile, inflation has been stable around 2 percent, and the ringgit appreciated against the U.S. dollar by 2.6 percent in 2024.
Current policies are focused on rebuilding fiscal buffers, augmenting growth potential, and strengthening social protection while preserving macroeconomic and financial stability. The landmark Public Finance and Fiscal Responsibility Act (FRA), enacted in 2023, aims to strengthen fiscal management and governance. Fiscal consolidation continued in 2024, with the overall fiscal deficit estimated to have declined from 5.0 percent of GDP in 2023 to the budget target of 4.3 percent of GDP in 2024, supported by subsidy reforms and strengthening of the sales and service tax. Bank Negara Malaysia (BNM) has kept the Overnight Policy Rate (OPR) unchanged at 3.0 percent since May 2023. Under the Economy MADANI Framework, the authorities have developed a set of concerted policy frameworks that focus on increasing incomes, addressing climate change, promoting digitalization, and enhancing governance.
Executive Board Assessment
In concluding the Article IV consultation with Malaysia, Executive Directors endorsed the staff’s appraisal as follows:
Malaysia’s favorable economic conditions provide a window of opportunity to build macroeconomic policy buffers and accelerate structural reforms. Malaysia’s strong growth momentum is expected to be sustained in the near term, with growth projected at 4.7 percent in 2025. Inflation, which eased to 1.8 percent in 2024, is projected to increase to 2.6 percent in 2025 on account of the anticipated implementation of gasoline subsidy reforms, before moderating to 2.3 percent in 2026. Malaysia’s external position in 2024 is preliminarily assessed to be stronger than the level implied by medium-term fundamentals and desirable policies.
Risks to growth, mostly external, are tilted to the downside, while inflation risks are tilted to the upside. Downside external risks include deepening geoeconomic fragmentation, a growth slowdown in major trading partners, and intensification of geopolitical conflicts, while upside growth risks include faster implementation of investment projects. The upside risks to the inflation outlook stem from global commodity price shocks and potential wage pressures from increases in minimum wage and civil servants’ pay.
Fiscal consolidation should continue to rebuild buffers and achieve the medium-term targets set under the FRA. Staff recommends achieving a small structural primary balance by 2027. Building on successful subsidy reforms, including for electricity and diesel, staff recommends gradually phasing out remaining fuel subsidies. Revenue mobilization efforts toward a more broad-based and efficient tax system are warranted. Reintroducing the GST could help achieve this goal. The associated impact of fiscal reforms on vulnerable households should be mitigated by well-targeted cash transfers. Staff welcomes the historic enactment of the FRA and recommends its swift and thorough implementation.
The current neutral monetary policy stance is appropriate. Going forward, monetary policy should remain data dependent. BNM should stand ready to tighten monetary policy if upside inflation risks materialize. Maintaining exchange rate flexibility is essential.
Financial systemic risks appear contained, and the financial sector remains sound. Banks’ capital and liquidity positions are robust. Credit growth, corporate and household balance sheets, and real estate markets do not pose systemic risks at this juncture. Continued vigilance is warranted against pockets of more highly leveraged borrowers, interlinkages between banks and non-bank financial institutions, and climate and cyber risks—although spillover risks from these areas remain contained. Given the strong growth and accommodative financial conditions, pre-emptive broadening of the macroprudential policy toolkit could be considered.
Staff encourages swift implementation of the structural reform initiatives to enhance productivity and inclusive growth. The ongoing development of the PADU digital registry can help strengthen social safety nets and public service delivery. Investment incentives to promote high-growth and high-value industries should be well-targeted and ring-fenced. Further efforts are warranted toward Malaysia's transition to net-zero emissions and readiness for Artificial Intelligence. Staff welcomes the authorities’ efforts to strengthen governance and the anti-corruption framework.
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Selected Economic and Financial Indicators, 2020–30
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Nominal GDP (2023): US$399.7 billion
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Population (2023): 33.4 million
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GDP per capita (2023, current prices): US$11,967
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Poverty rate (2019, national poverty line): 0.2 percent
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Unemployment rate (2023, period average): 3.4 percent
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Adult literacy rate (2019): 95.0 percent
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Main domestic goods exports (share of total domestic exports, 2023): Machinery and Transport Equipment (45.6 percent), Manufactured Goods and Miscellaneous Manufactured Articles (19.0 percent), and Mineral Fuels, Lubricants etc. (16.5 percent).
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Proj.
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2020
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2021
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2022
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2023
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2024
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2025
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2026
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2027
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2028
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2029
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2030
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1/
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Real GDP (percent change)
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-5.5
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3.3
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8.9
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3.6
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5.0
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4.7
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4.4
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4.0
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4.0
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4.0
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4.0
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Total domestic demand
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-4.8
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3.8
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9.5
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4.7
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6.1
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4.7
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4.0
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3.6
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3.6
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3.6
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3.4
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Private consumption
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-3.9
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1.8
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11.3
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4.7
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5.3
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4.5
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3.9
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3.4
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3.9
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3.8
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3.7
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Public consumption
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4.1
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5.8
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5.1
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3.3
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4.3
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3.5
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2.7
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2.4
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2.3
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2.3
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2.3
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Private investment
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-11.9
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2.8
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7.2
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4.6
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12.0
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6.0
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5.1
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4.0
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4.0
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4.0
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4.0
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Public gross fixed capital formation
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-21.2
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-11.0
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5.3
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8.6
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11.2
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4.0
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2.8
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2.3
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2.1
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2.0
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2.1
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Net exports (contribution to growth, percentage points)
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-1.0
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-0.3
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-0.1
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-0.9
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-0.8
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0.2
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0.5
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0.6
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0.5
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0.6
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0.7
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Output gap (in percent)
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-4.0
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-1.1
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2.5
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1.3
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1.1
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0.7
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0.4
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0.0
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0.0
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0.0
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0.0
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Saving and investment (in percent of GDP)
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Gross domestic investment
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19.7
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22.1
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23.6
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22.5
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22.5
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22.5
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22.6
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22.6
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22.5
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22.5
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22.5
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Gross national saving
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23.8
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26.0
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26.8
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24.0
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24.5
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24.7
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25.0
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25.3
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25.4
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25.5
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25.5
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Fiscal sector (in percent of GDP) 2/
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Federal government overall balance
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-6.2
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-6.4
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-5.5
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-5.0
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-4.3
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-3.8
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-3.8
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-3.8
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-3.8
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-3.8
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-3.8
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Revenue
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15.9
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15.1
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16.4
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17.3
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16.5
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16.2
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15.4
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15.1
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14.8
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14.6
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14.4
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Expenditure and net lending
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22.0
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21.5
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22.0
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22.3
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20.8
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20.0
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19.2
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18.9
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18.6
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18.4
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18.2
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Federal government non-oil primary balance
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-7.5
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-6.7
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-7.8
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-6.6
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-4.9
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-4.1
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-3.7
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-3.4
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-3.0
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-2.8
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-2.6
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Consolidated public sector overall balance 3/
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-7.3
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-8.3
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-6.0
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-5.9
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-8.4
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-6.7
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-6.8
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-6.9
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-6.8
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-6.9
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-6.9
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General government debt 3/
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67.7
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69.2
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65.5
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69.7
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69.6
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68.9
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68.7
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69.1
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69.3
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69.6
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69.8
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Of which: federal government debt
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62.0
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63.3
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60.2
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64.3
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64.4
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63.7
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63.5
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63.8
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64.1
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64.3
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64.5
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Inflation and unemployment (in percent)
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CPI inflation, annual average
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-1.2
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2.5
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3.4
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2.5
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1.8
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2.6
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2.3
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2.0
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2.0
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2.0
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2.0
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CPI inflation, end of period
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-1.4
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3.2
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3.8
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1.5
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1.7
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3.8
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2.0
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2.0
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2.0
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2.0
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2.0
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CPI inflation (excluding food and energy), annual average
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1.1
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0.7
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3.0
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3.0
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1.8
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2.4
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2.2
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2.0
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2.0
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2.0
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2.0
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CPI inflation (excluding food and energy), end of period
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0.7
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1.1
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4.1
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1.9
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1.6
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3.8
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2.0
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2.0
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2.0
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2.0
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2.0
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Unemployment rate
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4.5
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4.6
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3.9
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3.4
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3.2
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3.2
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3.2
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3.2
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3.2
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3.2
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3.2
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Macrofinancial variables (end of period)
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Broad money (percentage change) 4/
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4.9
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5.6
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4.0
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5.8
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7.1
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7.6
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6.7
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5.9
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5.9
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5.9
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5.9
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Credit to private sector (percentage change) 4/
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4.0
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3.8
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3.0
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5.2
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6.2
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6.1
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6.0
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5.9
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5.9
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5.9
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5.9
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Credit-to-GDP ratio (in percent) 5/ 6/
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144.8
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137.7
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122.4
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126.7
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125.7
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123.9
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123.1
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123.1
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123.1
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123.1
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123.1
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Overnight policy rate (in percent)
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1.75
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1.75
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2.75
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3.00
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…
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…
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…
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…
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…
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…
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…
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Three-month interbank rate (in percent)
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1.9
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2.0
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3.6
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3.7
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…
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…
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…
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…
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…
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…
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…
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Nonfinancial corporate sector debt (in percent of GDP) 7/
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109.7
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109.0
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97.5
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101.2
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…
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…
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…
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…
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…
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…
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…
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Nonfinancial corporate sector debt issuance (in percent of GDP)
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2.3
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2.6
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2.4
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2.5
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…
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…
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…
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…
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…
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…
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…
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Household debt (in percent of GDP) 7/
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93.1
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88.9
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80.9
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84.2
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…
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…
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…
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…
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…
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…
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…
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Household financial assets (in percent of GDP) 7/
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204.5
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191.9
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167.3
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174.3
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…
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…
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…
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…
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…
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…
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…
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House prices (percentage change)
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1.2
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1.9
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3.9
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3.8
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…
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…
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…
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…
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…
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…
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…
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Exchange rates (period average)
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Malaysian ringgit/U.S. dollar
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4.19
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4.14
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4.40
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4.56
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…
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…
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…
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…
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…
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…
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…
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Real effective exchange rate (percentage change)
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-3.5
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-1.3
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-1.4
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-2.5
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…
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…
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…
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…
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…
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…
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…
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Balance of payments (in billions of U.S. dollars) 5/
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Current account balance
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14.1
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14.5
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13.0
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6.2
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8.7
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10.2
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12.0
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14.3
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16.1
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17.6
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19.4
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(In percent of GDP)
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4.2
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3.9
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3.2
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1.5
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2.0
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2.2
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2.4
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2.7
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2.9
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3.0
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3.1
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Goods balance
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32.7
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42.9
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42.6
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29.9
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26.3
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29.3
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31.8
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33.9
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36.5
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39.2
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43.7
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Services balance
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-11.2
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-15.8
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-13.2
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-9.5
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-4.4
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-4.1
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-3.1
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-1.7
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-1.3
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-1.0
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-1.5
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Income balance
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-7.4
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-12.5
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-16.3
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-14.2
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-13.2
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-14.9
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-16.7
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-17.9
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-19.2
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-20.6
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-22.8
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Capital and financial account balance
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-18.5
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3.8
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1.8
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-3.4
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-6.0
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0.2
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-3.0
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-5.0
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-6.2
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-7.1
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-8.2
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Of which: Direct investment
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0.7
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7.5
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2.9
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0.0
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-1.3
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2.0
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2.1
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2.2
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2.4
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2.5
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2.6
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Errors and omissions
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-0.1
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-7.3
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-2.7
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-7.2
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0.0
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0.0
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0.0
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0.0
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0.0
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0.0
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0.0
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Overall balance
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-4.6
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11.0
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12.1
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-4.5
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2.7
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10.4
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9.0
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9.3
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9.9
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10.6
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11.2
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Gross official reserves (US$ billions) 5/
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107.6
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116.9
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114.7
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113.5
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116.2
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126.6
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135.6
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144.9
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154.8
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165.4
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176.6
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(In months of following year's imports of goods and nonfactor services)
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5.5
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4.9
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5.4
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4.6
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4.4
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4.6
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4.7
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4.8
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4.9
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4.9
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5.0
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(In percent of short-term debt by original maturity)
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117.6
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120.8
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104.9
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100.3
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99.4
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98.3
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97.2
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97.0
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97.3
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97.9
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98.9
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(In percent of short-term debt by remaining maturity)
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91.9
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93.5
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84.6
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80.7
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78.7
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79.4
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79.0
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79.2
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79.7
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80.5
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81.5
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Total external debt (in billions of U.S. dollars) 5/
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238.8
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258.7
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259.6
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270.6
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284.6
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305.1
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324.4
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342.8
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361.1
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379.2
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397.2
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(In percent of GDP)
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70.8
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69.3
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63.8
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67.8
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65.1
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65.3
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65.1
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64.9
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64.4
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63.8
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63.0
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Of which: short-term (in percent of total, original maturity)
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38.3
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37.4
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42.1
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41.8
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41.1
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42.2
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43.0
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43.6
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44.1
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44.6
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44.9
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short-term (in percent of total, remaining maturity)
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49.1
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48.3
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52.2
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51.9
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51.9
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52.3
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52.9
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53.4
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53.8
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54.2
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54.5
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Debt service ratio 5/
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|
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|
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(In percent of exports of goods and services) 8/
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|
13.6
|
10.5
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9.7
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11.8
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12.1
|
12.1
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10.1
|
9.8
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9.7
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9.6
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9.5
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(In percent of exports of goods and nonfactor services)
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|
14.4
|
11.4
|
10.3
|
12.7
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12.9
|
12.9
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10.7
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10.4
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10.3
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10.2
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10.0
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| |
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Memorandum items:
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Nominal GDP (in billions of ringgit)
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1,418
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1,549
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1,794
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1,823
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1,952
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2,099
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2,241
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2,373
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2,512
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2,660
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2,817
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Sources: Data provided by the authorities; CEIC Data; World Bank; UNESCO; and IMF, Integrated Monetary Database, and staff estimates.
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1/ Data used in this report for staff analyses are as of January 29, 2025, unless otherwise noted.
2/ Cash basis.
3/ Consolidated public sector includes general government and nonfinancial public enterprises (NFPEs). General government includes federal government, state and local governments, and statutory bodies.
4/ Based on data provided by the authorities, but follows compilation methodology used in IMF's Integrated Monetary Database. Credit to private sector in 2018 onwards includes data for a newly licensed commercial bank from April 2018. The impact of this bank is excluded in the calculation of credit gap.
5/ IMF staff estimates. U.S. dollar values are estimated using official data published in national currency.
6/ Based on a broader measure of liquidity. Credit gap is estimated on quarterly data from 2000, using one-sided Hodrick-Prescott filter with a large parameter.
7/ Revisions in historical data reflect the change in base year for nominal GDP (from 2010=100 to 2015=100).
8/ Includes receipts under the primary income account.
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
