IMF Staff Completes 2015 Article IV Mission to Malaysia

According to the IMF assessment following up the mission, “Despite challenging external and domestic conditions in 2015, the authorities have been able to maintain macroeconomic and financial stability, while making significant progress in improving the foundations for sustained economic growth over the medium term. Malaysia’s economy has been affected by multiple shocks since late 2014, including a sharp fall in commodity prices, weak external demand, political developments and capital outflows. However, the implementation of the goods and services tax (GST) last April, along with cuts in subsidies and operational expenditures, limited the impact on government finances of the oil price decline. Exchange rate flexibility has helped buffer the real economy and financial system from the sharp fall in commodity prices and volatility in global financial markets, while prudent monetary policy helped contain inflationary pressures arising from exchange rate depreciation and the implementation of the GST. Economic growth should remain solid in 2016, edging down to around 4.4 percent from an estimated 4.8 percent in 2015. Continued uncertainty about external conditions, including the likelihood of persistently low oil prices and more capital outflows, require continued prudent macroeconomic management. Protecting the budget should continue to be a top priority, and in this context the mission applauds the authorities’ determination to adhere to the federal government’s deficit target of 3.1 percent of GDP for 2016 and the medium term aim of balancing the budget by 2020-21. Malaysia’s recent strong growth, high investment and improvements in business environment scorecards are impressive. But the lower potential growth in the advanced economies makes maintaining this growth performance more challenging and provides an additional imperative for structural reforms. Implementation of reforms envisaged in the 11th Malaysia Plan and commitment to freer trade policies, including in the context of the Trans-Pacific Partnership Agreement, ASEAN Economic Community, and the proposed Regional Comprehensive Economic Partnership, should all help anchor structural reforms and raise Malaysia’s potential growth over the medium term. Further raising the skills of Malaysia’s labor force will be critical in the drive to become a high income nation. Steadfast implementation of education policies is needed to raise the quality of the educational system and student attainment standards. The mission also welcomes the authorities’ plans to strengthen anticorruption measures, as this should improve the business environment and public confidence in official institutions.
Press-release at the official IMF web-site