Malaysian authorities making progress on reform agenda, says IMF

19 Dec 2019 / 13:54 H.

KUALA LUMPUR: The Malaysian authorities are making progress on their reform agenda, with real gross domestic product (GDP) growth holding up and is projected at 4.5 per cent for 2019, driven by domestic demand, said the International Monetary Fund (IMF).

Malaysia’s headline inflation is expected to remain subdued at slightly under one per cent this year while the current account surplus is expected to increase to 3.5 per cent of GDP in 2019, it said in a statement.

The statement was issued after the IMF team led by Nada Choueiri visited Kuala Lumpur and Putrajaya on Dec 5-17 to conduct discussions for the 2020 Article IV Consultation with Malaysia.

“Looking ahead, real GDP growth is projected stable at 4.5 per cent in 2020, with domestic demand remaining the main driver of growth, while continued trade tensions between the United States (US) and China are expected to have an overall adverse impact on Malaysia’s growth. Inflation should average at 2.1 per cent,” she said.

The risks to the growth outlook are on the downside given that on the external side, Malaysia is vulnerable to escalating trade tensions, an abrupt deterioration in market sentiment towards emerging markets and weaker-than-expected trading partners’ growth.

Domestically, the downside risks are a sharp drop in real estate prices or a deterioration in household debt service ability.

However, the finalisation of a sustainable phase-one deal between the US and China is an upside risk for Malaysia.

Choueiri said Malaysia’s monetary policy framework has performed well, delivering price stability and robust growth in recent years, while the current monetary policy stance is appropriate in the context of a closing output gap.

“In case of adverse shocks, the policy response could be a combination of the use of available fiscal and monetary policy space and exchange rate flexibility.

“The financial sector is stable. Banks are well capitalised, profitability has been maintained and asset quality is sound. Household debt is high compared to peers and the real estate sector represents a vulnerability. The authorities’ close monitoring of these risks is welcomed,” she said.

She also noted that the authorities have made progress in governance reforms, including by launching the National Anti-Corruption Plan.

The IMF said acceleration of the authorities’ structural reform agenda would boost productivity and help achieve high-income status whereby priority measures in this area included continuing to promote trade openness, improve the business environment by facilitating small and medium enterprise’s access to credit, enhance the quality of and access to education, encourage innovation and technology adoption, as well as boost female labour force participation. -Bernama

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