Stamp of approval for Malaysia
INTERNATIONAL Monetary Fund gives thumbs up to Malaysia’s resilient economy, financial system.
THE International Monetary Fund (IMF) has given the thumbs-up to Malaysia for its resilient economy and financial system in recent years.
It said the country’s real gross domestic product (GDP) growth had surprised on the upside, growing at 5.9 per cent yearover-year in the first three quarters of this year.
For the year as a whole, the fund projected growth at 5.5-6.0 per cent, still driven by domestic demand and robust exports.
“Real GDP growth is projected at 5.0–5.5 per cent next year while headline inflation is expected to decline to the 3.0-3.5 per cent range on lower impact from global oil prices,” said the IMF’s Nada Choueiri.
In the preliminary findings following its annual visit for the 2018 Article IV Consultation, Choueiri, who led the IMF team, said: “Risks to the near–term outlook are balanced.
“Strong global demand for electronics, which has benefited Malaysia’s exports, could last longer than anticipated, while downside risks include policy uncertainty in advanced economies and tighter global financial conditions.”
Striking the right balance in policies will be key, she added.
On the monetary policy stance, Choueiri said Bank Negara Malaysia should be ready to raise the policy rate if leading indicators suggest the emergence of overheating pressures.
“Continued reliance on exchange rate flexibility and macroeconomic policy adjustments should be the first line of defence against capital flow shocks.”
The IMF team welcomed the central bank’s consultation with market participants in developing onshore financial markets.
Continuous communications on initiatives to deepen these markets over time would help further build confidence, said the fund.
“The financial sector is resilient. Bank profitability and liquidity are sound, and corporate access to credit remains healthy.”
While housing price growth has moderated, pockets of risks exist in exposures to household mortgages and the property development sector.
“However, their impact on macro-financial stability appears contained,” said the IMF.
The planned fiscal consolidation pace for 2017–2018 is appropriate, and will help build buffers and maintain financial market confidence.
“In the medium term, fiscal policy should follow a gradual consolidation path and the composition of adjustment could be improved to make it more revenue-based and to make room for the structural reforms and increased social spending for inclusive growth.”
The team also suggested that medium-term fiscal targets be better communicated.
The team visited Putrajaya and Kuala Lumpur from November 28 to December 8 and exchanged views with senior government officials and Bank Negara, apart from representatives from the private sector and think-tanks.
The report is expected to be presented to the executive board of the IMF in February next year.