KUALA LUMPUR: The International Monetary Fund (IMF) has commended Malaysia for its strong and resilient economic performance, underpinned by accommodative monetary policy and gradual fiscal consolidation.
“In recent years, the economy has shown resilience and continued to perform well despite external shocks, while fiscal consolidation proceeded. Progress was made towards achieving high-income status and improving inclusion,” it said.
After surprising on the upside in 2017, real Gross Domestic Product (GDP) growth is projected to remain above potential at 5.3% in 2018. Last year, the economy expanded 5.9%.
“Growth will likely remain above potential in 2018, inflationary pressures appear to be contained and risks to the outlook are balanced,” it said in a statement released in Washington on Wednesday.
Moving forward, the IMF emphasised the importance of supporting economic growth while maintaining stability and raising productivity through structural reform.
“The executive directors agreed with the planned pace of fiscal consolidation in 2018, noting that it will help build buffers while maintaining financial market confidence,” it said.
Last year’s federal budget deficit edged lower to 3.0% of GDP against 3.1% in 2016, in line with budget plans, and it is expected to further fall to 2.8% this year.
The IMF recommended that fiscal consolidation should prioritise higher revenue and assist the adoption of fiscal measures to support external rebalancing.
It also supported Malaysia’s January increase in the monetary policy rate.
“Noting that Bank Negara Malaysia’s (BNM) monetary policy framework has served the country well, the directors recommended that monetary policy and exchange rate flexibility remain the first line of defence against shocks,” it said.
The fund also welcomed last year’s improvements to the depth and liquidity of onshore financial markets.
“The directors supported the consultative and inclusive approach adopted by the BNM Financial Markets Committee in developing these measures, and urge the authorities to build on these successes to address any further gaps in financial market development,” it said.
The IMF also agreed that financial sector risks appear contained, with sound bank profitability and liquidity, and low non-performing loans.
But it noted that vulnerabilities in household mortgages and the property development sector required vigilance.
Malaysian authorities were commended for their emphasis on raising productivity and investment and encouraged further labour market reforms.
According to the World Bank’s Malaysia Economic Monitor report 2017, it said that Malaysia was projected to exceed the threshold that defines high-income economy status at some point in the period from 2020 to 2024.
The World Bank also projects Malaysia’s economy to continue at a strong pace of 5.2% in 2018. — Bernama