IMF PRAISES MALAYSIA’S RESILIENCE
Country to post 4.7pc real GDP growth this year on strong domestic demand, says Fund
THE International Monetary Fund (IMF) has praised Malaysia’s economic resilience but says a comprehensive structural reform agenda is needed to help the country achieve high-income status and inclusive economic development.
IMF also expects the country to post a 4.7 per cent real gross domestic product (GDP) growth this year, driven by domestic demand.
“The Malaysian economy has shown resilience in recent years and continues to perform well,” said Nada Choueiri, who led the IMF team, which was in Malaysia recently to conduct discussions for the 2019 Article IV Consultation with government officials.
“Real GDP growth is moderating in line with expectations and is projected at 4.7 per cent for this year, driven by domestic demand,” she added.
Choueiri said headline inflation was declining and expected to average around 1.1 per cent this year.
“Credit growth rebounded recently and capital outflows have been manageable. The current account surplus is projected to decline to 2.1 per cent of GDP.”
IMF believes Malaysia’s fiscal policy should show a gradual consolidation path, making room for increased pro-growth social spending.
The country’s revenues should be strengthened while maintaining the current broadly neutral monetary policy stance was appropriate, it added.
The IMF’s fact-finding mission concluded that a comprehensive structural reform agenda, along the lines laid out in the Mid-Term Review of the 11th Malaysia Plan was needed to help Malaysia achieve high-income status and inclusive economic development.
In addition, the IMF team found that priority should be given to effective implementation of policies that lift productivity growth, included improving education, accelerating innovation and technology adoption and encouraging a move up the value chain, among others.
“Looking ahead, real GDP growth is projected at 4.5 to five per cent next year, with domestic demand remaining the main driver. The United States tariffs on imports from China are expected to have an overall adverse impact on Malaysia’s growth. Inflation should average 2.2 per cent, as the effect of Goods and Services Tax removal dissipates.”
Choueiri also viewed the country’s the risks to the growth outlook were to the downside.
On the external side, she said Malaysia was vulnerable to rising protectionism, a sharp tightening of global financial conditions, and weaker-than-expected growth in trading partners.
Domestically, contingent liabilities could necessitate additional measures to ensure mediumterm fiscal sustainability.
“While the budget deficit projected for this year represents a delay to the fiscal adjustment, the government’s planned pace of fiscal consolidation for next year is appropriate and will help build buffers and maintain financial market confidence.
“In the medium term, fiscal policy should follow a gradual consolidation path. The composition of adjustment should be improved to make it more revenue based, making room for increased social spending to support inclusive growth,” she said.
The IMF team will prepare a staff report and present it to the executive board of the IMF in February next year.
Choueiri said Malaysia’s monetary policy framework had performed well, delivering price and output stability.
The current broadly neutral monetary policy stance is appropriate, given close-to-potential growth, no inflationary pressures and gradually tightening financial conditions.
Continued reliance on exchange rate flexibility and macroeconomic policy adjustments should be the first line of defence against external shocks, she said.
“The financial system seems well positioned to cope with standard shocks. Bank profitability and liquidity are sound and the corporate sector is only moderately leveraged.
“Household debt is high, but declining as a share of GDP, and risks in the housing market appear manageable. Although the financial sector is resilient at present, the authorities’ close monitoring and active consideration of measures to mitigate risks are welcome,” said Choueiri.
Looking ahead, real GDP growth is projected at 4.5 to five per cent next year, with domestic demand remaining the main driver. NADA CHOUEIRI
International Monetary Fund mission chief for Malaysia