IMF lauds Malaysia’s macroeconomic policies
KUALA LUMPUR: The International Monetary Fund (IMF) has praised Malaysia for its “sound macroeconomic policies”, which ensure that the economy stays resilient in the face of headwinds and risks and place it among the fastest-growing economies among its peers.
It said Malaysia’s resilience was due to a diversified production and export base, strong balance sheet positions, a flexible exchange rate, responsive macroeconomic policies and deep financial markets.
Policy buffers must, however, continue to be strengthened as authorities continue to face a challenging environment given the global uncertainty.
“While Malaysia’s economic growth is expected to continue this year, weaker-than-expected growth in key advanced and emerging economies, or a global retreat from cross-border integration, could weigh on the domestic economy,” said the IMF executive board after its annual consultation report on Malaysia on Friday.
It projected the Malaysian economy to grow by 4.5 per cent this year from 4.2 per cent last year, underpinned by domestic demand.
For Malaysia, risks to the growth outlook would not only come from external uncertainties but also from the domestic side, particularly household debt that remains high.
“The risks are primarily related to public sector and household debt, along with pockets of vulnerabilities in the corporate sector,” said IMF.
Federal debt and contingent liabilities are relatively high, which it warned would limit policy space to respond to shocks.
With the target towards a nearbalanced federal budget by 2020, the IMF said this would help alleviate risks from elevated government debt levels and contingent liabilities, and build fiscal space.
While the monetary policy stance by Bank Negara Malaysia is appropriate, it also welcomes the commitment to keep the exchange rate as the key shock absorber. Foreign reserves would, however, need to be increased as a buffer in the event of disorderly market conditions.
IMF also supports Malaysia’s emphasis on increasing female labour force participation, improving the quality of education, lowering skills mismatch, boosting productivity growth, encouraging research and innovation, and upholding high standards of governance.
It expects the Consumer Price Index to average 2.7 per cent on the back of higher global oil prices and rationalisation of cooking oil subsidies, while the current account surplus will be largely unchanged. Rupa Damodaran