KUALA LUMPUR — March 11, 2019: The International Monetary Fund (IMF) expects Malaysia’s economic growth to stabilise in 2019 and over the medium term, with domestic demand remaining the main driver of growth, with private consumption and investment supported by an improved business environment and investor confidence.
This would counterbalance the negative drag from the external environment and fiscal consolidation, leaving growth flat at 4.7 per cent in 2019 and close to potential (about 4.75 per cent) over the medium term, the fund said in a statement issued today.
The statement was in conjunction with the IMF executive board concluding the 2019 Article IV consultation with Malaysia on February 15. A report, which was used as the basis of the board’s discussion, had been prepared by a staff team which earlier visited the country, collected economic and financial information, and discussed with officials on the country’s economic developments and policies.
According to the IMF, Malaysia’s economy continues to perform well despite external headwinds. Growth, it noted, had averaged above five per cent over the past five years, leading to higher per capita income and reducing already-low poverty.
However, the IMF expects inflation to pick up and the current account surplus to continue to narrow. Inflation will rise above two per cent in 2019, as the effect of the Goods and Services Tax (GST) removal dissipates and oil subsidies become targeted.
Over the medium term, growth is expected to converge to potential and inflation will remain subdued.
The world body further noted that credit-to-gross domestic product ratio was declining.
On the external side, the current account surplus was estimated at 2.2 per cent of GDP in 2018, having gradually narrowed in recent years as growth drivers had shifted towards domestic demand.
The executive directors commended the authorities for the resilient performance of the Malaysian economy over recent years, noting that growth was solid, without signs of inflationary pressures.
They concurred that while the medium-term outlook remains favourable, risks are tilted to the downside stemming primarily from the external environment.
They would like to see the authorities continue to implement credible macro-economic policies while safeguarding growth and financial stability, and undertaking structural reforms to boost sustainable, inclusive growth.
Noting Malaysia’s low tax revenue ratio, the directors emphasised that revenue mobilisation should be a priority, not only to support medium-term consolidation but also to help finance needed expenditure to achieve government priorities identified under the mid-term review of the Eleventh Malaysia Plan. — Bernama