IMF Staff Completes 2017 Article IV Mission to Malaysia
An International Monetary Fund (IMF) team, led by Daisaku Kihara, visited Kuala Lumpur and Putrajaya from November 30-December 14, 2016, to conduct discussions for the 2017 Article IV Consultation with Malaysia. The team exchanged views with senior officials of the Government of Malaysia and Bank Negara Malaysia (BNM), and met with representatives from the private sector and think tanks.
At the conclusion of the visit, Mr. Kihara issued the following statement:
“The Malaysian economy continues to perform well, despite significant headwinds. Real GDP growth is projected at 4.2 percent for 2016, underpinned by resilient domestic demand. Malaysia’s diversified economy, along with exchange rate flexibility, has buffered the real economy from the commodity price shock, while deep financial markets have helped absorb global financial market volatility. Inflation has been subdued and the current account remains in surplus.
“Real GDP growth is projected to increase to around 4.5 percent in 2017. Private consumption growth should remain strong, supported by labor market strength and fiscal measures. Lower commodity prices have impacted business sentiment, moderating private investment growth. The current account surplus is projected to be largely unchanged. Over the medium term, potential economic growth is expected to be between 4.5 and 5 percent.
“External risks include structurally weak growth in advanced and emerging market economies. While the Malaysian economy has adjusted well to lower global oil prices, sustained low commodity prices add to the challenges of fiscal consolidation. Heightened global financial stress could potentially spill over to domestic markets. Domestic risks are primarily related to elevated public sector and household debt. Although its ratio to GDP is likely to decline, household debt remains relatively high. Risks of a severe downturn in the financial cycle appear to be low, mainly due to a resilient banking system and BNM’s prudential policies and oversight.
“The authorities’ plan to gradually consolidate the fiscal position over the medium-term will help bolster resilience and is appropriate. Consolidation will also help alleviate the risks from elevated contingent liabilities. Looking ahead, the pace of consolidation should reflect economic conditions. The 2017 Budget, envisaging a deficit of 3.0 percent of GDP, represents progress toward the medium-term objective. Federal government debt is expected to remain below 55 percent of GDP.
“The current monetary policy stance is appropriate in the baseline scenario of moderate growth, low inflation, and external uncertainties. Monetary policy will continue to require careful calibration to support growth while maintaining financial stability. Exchange rate flexibility has played a key role in helping the economy to adjust to a series of external shocks and should remain the first line of defense. Amid global financial volatility, continued consultation and communication with market participants will help maintain investor confidence and orderly functioning of the foreign exchange market.
“Malaysia has made significant progress toward achieving high-income status. A range of structural reforms has been undertaken to boost longer-term economic growth. The authorities are encouraged to continue with their reform plans, including through encouraging female labor participation, improving quality of education, addressing skill mismatches in labor market, enhancing productivity, investing in infrastructure, and promoting research and development.
“The team would like to thank the officials of the Government of Malaysia and Bank Negara Malaysia, as well as representatives from think tanks and the private sector for the useful discussions. We would also like to thank the authorities for their hospitality during our stay. We look forward to maintaining a close and productive relationship with Malaysia. The mission will prepare a staff report and present it to the Executive Board of the IMF for discussion in March 2017.”
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