Washington, DC: On February 21, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with Malaysia.
Malaysia's growth momentum is slowing, albeit from a high base in 2022. Advanced estimates indicate 3.4 percent growth for 2023Q4, down from 8.7 percent in 2022. Growth is estimated at about 4 percent in 2023, driven by robust domestic demand, as exports weakened markedly due to the economic slowdown in major trading partners.[2] Disinflation is taking hold, with average inflation falling to 2.5 percent in 2023, down from 3.4 percent in 2022. Malaysia's strong macroeconomic policy frameworks, including a track record of fiscal prudence and a credible monetary policy framework, have served the country well and have become more important as it undergoes important structural reforms. A history of costly and untargeted spending on subsidies is coming to an end.
Macro policies have appropriately tightened. Bank Negara Malaysia (BNM) had increased the overnight policy rate (OPR) five times since May 2022 by a total of 125 bps to its pre-pandemic level of 3.0 percent. The OPR remained unchanged since May 2023 with the monetary policy stance currently broadly neutral. The 2023 Budget deficit target is expected to be met. The 2024 Budget appropriately charts the near-term consolidation path, targeting a decline in the overall deficit from 5 percent of GDP in 2023 to 4.3 percent in 2024, and down to less than 3 percent of GDP by 2026.
Resilient domestically driven growth and upside risks to inflation define the near-term outlook. Growth is projected to slightly accelerate to 4.3 percent in 2024, supported by resilient private consumption and investment and a rebound in public spending. Inflation is projected to pick up to 2.9 percent in 2024, pending uncertainty around subsidy reform. Over the medium term, the current account surplus is expected to widen, as tourism recovers and improves the services balance.
Executive Board Assessment[3]
Executive Directors welcomed Malaysia's economic resilience, underpinned by strong fundamentals and the authorities' sound policymaking. Noting downside risks to the growth outlook and upside risks to inflation, Directors agreed that near-term macroeconomic policies should focus on preserving price stability and rebuilding buffers, while structural reforms should support medium-term growth and the path to high-income status.
Directors welcomed the recent enactment of the Public Finance and Fiscal Responsibility Act 2023 and the authorities' planned fiscal consolidation, which would help rebuild buffers. To support the consolidation path as well as the country's development and social needs, Directors called for credible and durable revenue mobilization measures and for spending prioritization. In this context, they encouraged the authorities to continue implementing the subsidy reform and to consider reintroducing the Goods and Services Tax, which can help finance pro-poor spending, thereby offsetting its regressivity effects.
Directors generally agreed that the central bank's broadly neutral, data-dependent monetary policy stance will help safeguard price stability. They cautioned against prematurely cutting policy rates, noting upside risks to inflation. Directors welcomed the central bank's measures to further develop FX markets and concurred that exchange rate flexibility and reserve adequacy should be preserved.
Directors welcomed the financial sector's soundness and the authorities' commitment to safeguard financial stability. They encouraged the authorities to continue monitoring highly leveraged households and small firms, and welcomed the updates to stress-test design to better capture emerging risks. Directors also encouraged the authorities to consider expanding, as needed, the macroprudential toolkit in a preventive manner. They welcomed the strengthening of AML/CFT frameworks and called for continued efforts on this front.
Directors commended the authorities' appropriately focused and concerted structural reform agenda and called for its timely implementation. They recommended focusing on reforms to improve labor market outcomes and increase incomes, which would also contribute to external rebalancing. Directors emphasized the importance of promoting the green transition and digitalization—including carefully leveraging the benefits of Artificial Intelligence—and of enhancing governance and anti-corruption frameworks. They underscored the importance of preserving the sustainability of the pension system, noting the authorities' initiatives on this front.
Table 1. Malaysia: Selected Economic and Financial Indicators, 2020-26 |
|||||||||
Nominal GDP (2022): US$407.0 billion |
Population (2022): 32.7 million |
||||||||
GDP per capita (2022, current prices): US$12,466 |
Poverty rate (2019, national poverty line): 0.2 percent |
||||||||
Unemployment rate (2022, period average): 3.8 percent |
Adult literacy rate (2019): 95.0 percent |
||||||||
Main domestic goods exports (share of total domestic exports, 2022): Machinery and Transport Equipment (43.4 percent), Miscellaneous Manufactured Articles (10.5 percent), and Manufactured Goods (8.9 percent). |
|||||||||
Proj. |
|||||||||
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
|||
Est. 1/ |
|||||||||
Real GDP (percent change) |
-5.5 |
3.3 |
8.7 |
4.0 |
4.3 |
4.4 |
4.4 |
||
Total domestic demand |
-4.8 |
3.8 |
9.3 |
4.3 |
4.0 |
4.2 |
4.2 |
||
Consumption |
-2.6 |
2.7 |
9.9 |
5.6 |
5.0 |
3.9 |
4.1 |
||
Private consumption |
-3.9 |
1.9 |
11.2 |
7.5 |
6.1 |
4.6 |
4.7 |
||
Public consumption |
4.1 |
6.4 |
4.5 |
-3.3 |
-0.8 |
0.0 |
0.8 |
||
Private investment |
-11.9 |
2.7 |
7.2 |
5.6 |
6.4 |
6.0 |
5.7 |
||
Public gross fixed capital formation |
-21.2 |
-11.1 |
5.3 |
-17.5 |
-8.7 |
1.6 |
-0.7 |
||
Net exports (contribution to growth, percentage points) |
-1.0 |
-0.3 |
-0.1 |
-0.1 |
0.5 |
0.5 |
0.4 |
||
Saving and investment (in percent of GDP) |
|||||||||
Gross domestic investment |
19.7 |
22.1 |
23.5 |
24.0 |
23.5 |
24.0 |
24.0 |
||
Gross national saving |
23.8 |
26.0 |
26.6 |
26.4 |
26.3 |
26.8 |
26.9 |
||
Fiscal sector (in percent of GDP) 2/ |
|||||||||
Federal government overall balance |
-6.2 |
-6.4 |
-5.6 |
-5.0 |
-4.2 |
-4.2 |
-4.2 |
||
Revenue |
15.9 |
15.1 |
16.4 |
15.9 |
14.9 |
14.5 |
14.1 |
||
Expenditure and net lending |
22.0 |
21.5 |
22.0 |
20.9 |
19.2 |
18.8 |
18.3 |
||
Tax refunds (Arrears) |
|||||||||
Federal government non-oil primary balance |
-5.0 |
-4.4 |
-6.2 |
-6.2 |
-4.8 |
-4.2 |
-3.6 |
||
Consolidated public sector overall balance 3/ |
-7.3 |
-8.3 |
-6.7 |
-7.9 |
-5.9 |
-5.8 |
-5.6 |
||
General government debt 3/ |
67.7 |
69.2 |
65.6 |
66.8 |
66.6 |
66.5 |
66.8 |
||
Of which: federal government debt |
62.0 |
63.3 |
60.3 |
61.5 |
61.2 |
61.2 |
61.5 |
||
Inflation and unemployment (annual average, in percent) |
|||||||||
CPI inflation |
-1.1 |
2.5 |
3.4 |
2.5 |
2.9 |
2.5 |
2.2 |
||
CPI inflation (excluding food and energy) |
1.1 |
0.7 |
3.0 |
3.0 |
3.1 |
2.0 |
2.0 |
||
Unemployment rate |
4.5 |
4.7 |
3.8 |
3.6 |
3.5 |
3.5 |
3.5 |
||
Macrofinancial variables (end of period) |
|||||||||
Broad money (percentage change) 4/ |
4.9 |
5.6 |
4.0 |
6.6 |
7.9 |
7.5 |
6.7 |
||
Credit to private sector (percentage change) 4/ |
4.0 |
3.8 |
3.0 |
6.6 |
7.9 |
7.5 |
6.7 |
||
Credit-to-GDP ratio (in percent) 5/ 6/ |
144.8 |
137.6 |
122.6 |
122.6 |
122.6 |
122.6 |
122.6 |
||
Overnight policy rate (in percent) |
1.75 |
1.75 |
2.75 |
… |
… |
… |
… |
||
Three-month interbank rate (in percent) |
1.9 |
2.0 |
3.6 |
… |
… |
… |
… |
||
Nonfinancial corporate sector debt (in percent of GDP) 7/ |
109.7 |
108.9 |
97.6 |
… |
… |
… |
… |
||
Nonfinancial corporate sector debt issuance (in percent of GDP) |
2.3 |
2.6 |
… |
… |
… |
… |
… |
||
Household debt (in percent of GDP) 7/ |
93.1 |
88.9 |
81.0 |
… |
… |
… |
… |
||
Household financial assets (in percent of GDP) 7/ |
204.5 |
191.8 |
167.6 |
… |
… |
… |
… |
||
House prices (percentage change) |
1.2 |
1.2 |
3.5 |
… |
… |
… |
… |
||
Exchange rates (period average) |
|||||||||
Malaysian ringgit/U.S. dollar |
4.20 |
4.15 |
4.40 |
… |
… |
… |
… |
||
Real effective exchange rate (percentage change) |
-3.5 |
-1.3 |
-1.5 |
… |
… |
… |
… |
||
Balance of payments (in billions of U.S. dollars) 5/ |
|||||||||
Current account balance |
14.1 |
14.5 |
12.5 |
10.2 |
12.2 |
13.3 |
14.9 |
||
(In percent of GDP) |
4.2 |
3.9 |
3.1 |
2.4 |
2.7 |
2.8 |
2.9 |
||
Goods balance |
32.7 |
42.9 |
42.3 |
33.7 |
37.0 |
39.8 |
42.8 |
||
Services balance |
-11.2 |
-15.8 |
-12.8 |
-10.3 |
-10.8 |
-11.0 |
-10.8 |
||
Income balance |
-7.4 |
-12.5 |
-16.9 |
-13.3 |
-14.0 |
-15.5 |
-17.2 |
||
Capital and financial account balance |
-18.5 |
3.8 |
2.7 |
-11.3 |
-5.2 |
-1.9 |
-4.1 |
||
Of which: Direct investment |
0.7 |
7.5 |
3.6 |
2.7 |
3.5 |
3.8 |
4.0 |
||
Errors and omissions |
-0.1 |
-7.3 |
-3.1 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Overall balance |
-4.6 |
11.0 |
12.1 |
-1.2 |
6.9 |
11.5 |
10.8 |
||
Gross official reserves (US$ billions) 5/ 8/ |
107.6 |
116.9 |
114.7 |
113.5 |
120.4 |
131.9 |
142.6 |
||
(In months of following year's imports of goods and nonfactor services) |
5.5 |
4.9 |
5.2 |
4.5 |
4.5 |
4.7 |
4.8 |
||
(In percent of short-term debt by original maturity) |
117.6 |
120.8 |
105.1 |
91.9 |
90.7 |
89.7 |
88.3 |
||
(In percent of short-term debt by remaining maturity) |
91.9 |
93.5 |
84.8 |
75.3 |
74.1 |
74.6 |
74.1 |
||
Total external debt (in billions of U.S. dollars) 5/ 8/ |
238.8 |
258.7 |
259.4 |
279.9 |
296.6 |
318.0 |
339.0 |
||
(In percent of GDP) |
70.8 |
69.3 |
63.8 |
66.9 |
66.7 |
66.3 |
66.2 |
||
Of which: short-term (in percent of total, original maturity) |
38.3 |
37.4 |
42.1 |
44.1 |
44.8 |
46.3 |
47.7 |
||
short-term (in percent of total, remaining maturity) |
49.1 |
48.3 |
52.2 |
53.9 |
54.8 |
55.6 |
56.8 |
||
Debt service ratio 5/ |
|||||||||
(In percent of exports of goods and services) 9/ |
13.6 |
10.5 |
9.7 |
11.3 |
11.9 |
12.0 |
11.3 |
||
(In percent of exports of goods and nonfactor services) |
14.4 |
11.4 |
10.3 |
12.1 |
12.7 |
12.8 |
12.1 |
||
Memorandum items: |
|||||||||
Nominal GDP (in billions of ringgit) |
1,418 |
1,549 |
1,791 |
1,910 |
2,061 |
2,215 |
2,365 |
||
Sources: Data provided by the authorities; CEIC Data; World Bank; UNESCO; and IMF, Integrated Monetary Database, and staff estimates. |
|||||||||
1/ Data used in this report for staff analyses are as of January 30, 2024, unless otherwise noted. Official full year preliminary actual GDP is scheduled to be released on February 16th, 2024. 2/ Cash basis. 3/ Consolidated public sector includes general government and nonfinancial public enterprises (NFPEs). General government includes federal government, state and local governments, and statutory bodies. 4/ Based on data provided by the authorities, but follows compilation methodology used in IMF's Integrated Monetary Database. Credit to private sector in 2018 onwards includes data for a newly licensed commercial bank from April 2018. The impact of this bank is excluded in the calculation of credit gap. 5/ IMF staff estimates. U.S. dollar values are estimated using official data published in national currency. 6/ Based on a broader measure of liquidity. Credit gap is estimated on quarterly data from 2000, using one-sided Hodrick-Prescott filter with a large parameter. 7/ Revisions in historical data reflect the change in base year for nominal GDP (from 2010=100 to 2015=100). 8/ The decrease in short-term debt by remaining maturity in 2017 was partly due to the implementation of an improved data compilation system that corrected previous overestimation. 9/ Includes receipts under the primary income account. |
|||||||||
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The data utilized in this report for staff analysis are as of January 30, 2024, unless otherwise noted. The official preliminary GDP figures for the full year are scheduled to be released on February 16, 2024.
[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
