KUALA LUMPUR – The Executive Board of the International Monetary Fund (IMF) has praised Malaysiaâ€™s impressive strides in economic development, saying they are the outcome of comprehensive initiatives to boost investment, improve infrastructure and upgrade human capital.
In its statement today, the IMF’s directors said they agreed that Malaysiaâ€™s commitment to regional integration should also help support the countryâ€™s transition to high-income status by further enhancing competition and productivity.
The directors concluded the ‘Article IV’ consultation with Malaysia on Feb 13, 2015, saying they agreed with the thrust of the IMF staff team’s appraisal on Malaysia.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year.
The IMF staff team had visited Malaysia — collecting economic and financialinformation, and discussing with officials the country’s economic developments and policies — and prepared a report, which forms the basis for discussion by the Executive Board.
“Malaysiaâ€™s economic prospects remain favourable, notwithstanding risks from softening external demand, volatile capital flows, and lower commodity prices,” reported the team, who completed the report on Jan 23.
The IMF’s directors shared the view that Malaysia is well-placed to address these risks, given a track record of skilful macroeconomic management, strong policy frameworks, and a sound financial system.
The directors commended Malaysian authoritiesâ€™ continued commitment to fiscal prudence and welcomed their response to weaker oil-related revenues, especially the removal of poorly-targeted fuel subsidies which creates budgetary space for needed social and capital investment.
They cautioned, however, that a prolonged period of depressed commodity prices may require further fiscal adjustment.
Accordingly, they encouraged the authorities to consider broadening the revenue base, phase out remaining untargeted subsidies, and further improve public financial management and social transfers.
They agreed that the current accommodative monetary policy stance is appropriate, given subdued inflation and the likelihood that prospective price increases related to the introduction of a value-added tax will be offset by lower energy prices.
More broadly, they commended Bank Negara Malaysiaâ€™s cautious policymaking to ensure that monetary policy continues to support non-inflationary growth and financial stability.
They noted that Malaysiaâ€™s financial system is sound and benefits from a strong regulatory and supervisory framework, and policies have been successful so far in containing financial vulnerabilities, although high household debt warrants continued vigilance.
Additional macroprudential measures could be needed if the low interest rate environment leads to excessive leverage, they cautioned.
The directors welcomed the ongoing reduction of Malaysiaâ€™s current account surplus, which reflects in part the economyâ€™s rebalancing toward domestic demand.
They also agreed with the staff projection that Malaysia’s growth is expected to moderate to 4.8 per cent in 2015.
“Strong investment momentum should help offset headwinds from continued fiscal consolidation.
“Lower energy prices will be a drag on oil and gas production but should provide a boost to the large non-oil sector,” the statement said.
It said Malaysia’s consumption growth will moderate following the introduction of the Goods and Services Tax (GST), lthough a strong labour market and supportive â€” albeit gradually tightening â€” domestic financial conditions and lower energy costs should help consumers.
Malaysia’s fiscal consolidation is well-timed, appropriately paced, and remains on track, it noted.
“The authorities recently revised the federal budget resulting in a slight change of the budget deficit ceiling, to 3.2 per cent from 3.0 per cent of gross domestic product (GDP), in a timely and pragmatic response to the sharp recent decline in international crude oil prices,” it added. – Bernama