End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
- Malaysia entered the pandemic from a robust economic position, but the severe shock is estimated to have caused the worst recession since the Asian Financial Crisis. A strong rebound is expected in 2021 with real GDP growth of 7 percent.
- The 2021 budget strikes a balance between protecting the vulnerable, sustaining the economy, and initiating fiscal consolidation. The accommodative monetary and financial policies are appropriate and should continue until the recovery is securely underway.
- Once the recovery firmly takes hold, a return to fiscal consolidation will be needed to rebuild buffers. Structural policies should be calibrated to support the economic transformation.
An International Monetary Fund (IMF) team, led by Nada Choueiri, conducted discussions via virtual meetings for the 2021 Article IV Consultation with Malaysia during November 30-December 15, 2020. At the conclusion of the virtual discussions, Ms. Choueiri issued the following statement:
"The Malaysian economy entered the pandemic from a robust economic position, but the shock has been severe and is expected to cause a 5.8 percent decline in real GDP in 2020. Inflation is expected to settle at negative 1.2 percent and unemployment, which peaked earlier in the year, has only partially recovered. The authorities have reacted appropriately by coordinating a multi-pronged policy response that supported lives and livelihoods, stabilized domestic financial markets and ensured the flow of credit to the economy.
"Looking ahead, real GDP is projected to rebound by 7 percent in 2021 supported by both domestic and external demand. Exports, which were propped up in 2020 by strong pandemic-related demand for personal protective equipment and electronic products, will continue to underpin growth. But the recovery will be uneven across sectors. Inflation will rise to around 2 percent in 2021 as electricity tariff rebates expire, fuel prices rise, and domestic demand recovers.
"The risks to the growth outlook are to the downside. An intensification of the pandemic could derail the recovery. Malaysia's highly open economy is vulnerable to escalating trade actions, weaker-than-expected trading partner growth, and global financial shocks. Domestic policy uncertainty also poses risks to recovery. On the upside, faster than expected availability of COVID-19 vaccines could accelerate the recovery.
"The 2021 federal budget strikes a balance between protecting the vulnerable, sustaining the economy, and initiating fiscal consolidation. Should the pandemic intensify, the authorities should be ready to increase support to the economy. The authorities' commitment to pursuing fiscal consolidation once the recovery is firmly entrenched is welcome, as such adjustment will be required to rebuild buffers. In preparation, identifying specific revenue and spending measures and laying the groundwork for policy actions to reduce the deficit is a priority.
"The accommodative monetary and financial policies are appropriate and should continue until the recovery is securely underway. Should downside risks materialize, Bank Negara Malaysia (BNM) has sufficient space to further ease monetary policy, and the flexible exchange rate would also help.
"The financial sector's buffers are helping weather the economic impact of the pandemic, keeping macro-financial risks contained for now. The authorities' close monitoring of risks is welcome.
"The authorities should stay the course on governance reforms, and anchor them in legislation. Articulating specific policies to foster a green, resilient, equitable recovery and productivity growth would support the authorities' medium-term objectives and help Malaysia reach high-income status.
"The IMF team would like to thank the officials of the Government of Malaysia and Bank Negara Malaysia, as well as representatives from think tanks, NGOs, and the private sector for helpful discussions, notwithstanding the virtual environment and other challenges created by the pandemic. We look forward to maintaining a close and productive relationship with Malaysia. The IMF team will prepare a report and expects to present it to the Executive Board of the IMF in February 2021."
