KUALA LUMPUR, March 11 — The International Monetary Fund (IMF) expects Malaysia’s economic growth to stabilise in 2019 and over the medium term.
“Domestic demand will remain 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 today.
The statement was issued in conjunction with the IMF Executive Board concluding the 2019 Article IV consultation with Malaysia on Feb 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.
IMF said Malaysia’s economy continued 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.
“Economic growth is now moderating, and is estimated at 4.7 per cent in 2018 underpinned by robust domestic and external demand.
“Headline inflation dropped from an average of 3.7 per cent in 2017 to an estimated one per cent in 2018 as domestic fuel price adjustment was suspended, the GST was zero-rated and replaced by the narrower-base sales and services tax, and food price inflation declined,” it said.
However, IMF expects inflation to pick up and the current account surplus to continue to narrow.
“Inflation would 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 was expected to converge to potential and inflation will remain subdued,” it said.
Meanwhile, IMF said the credit-to-gross domestic product (GDP) 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.
IMF’s 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 remained favourable, risks were tilted to the downside stemming primarily from the external environment.
They encouraged the authorities to continue implementing credible macroeconomic policies while safeguarding growth and financial stability, and undertaking structural reforms to boost sustainable, inclusive growth.
The IMF directors agreed with the planned gradual pace of fiscal consolidation in 2019 and over the medium term to support debt reduction and strengthened fiscal buffers.
They encouraged the authorities to embed the medium-term fiscal path in a strengthened fiscal framework that would rely on credible revenue and expenditure measures.
“Noting Malaysia’s low tax revenue ratio, 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,” it said.
They welcomed continued efforts to increase fiscal transparency.
IMF directors also supported the broadly neutral monetary policy stance.
“Going forward, domestic economic and financial conditions should continue to guide monetary policy decisions, with exchange rate flexibility the first line of defence against shocks,” it said.
IMF also opined that exchange rate flexibility should help further financial market deepening. — Bernama
Source: The Malay Mail Online