KUALA LUMPUR: The International Monetary Fund has praised Malaysia for its “sound macroeconomic policies” which ensures that the economy stays resilient in the face of significant headwinds and risks – placing it as among the fastest-growing economies among its peers.
It said Malaysia’s resilience is due to a diversified production and export base, strong balance sheet positions, a flexible exchange rate, responsive macroeconomic policies and deep financial markets.
Policy buffers must, however, continue to be strengthened.
"While Malaysia's economic growth is expected to continue in 2017, weaker-than-expected growth in key advanced and emerging economies, or a global retreat from cross-border integration, could weigh on the domestic economy," said the Fund's executive board after its annual consultation report on Malaysia last night.
It has projected the Malaysian economy to grow by 4.5 per cent this year from 4.2 per cent in 2016, underpinned by domestic demand activities.
For Malaysia, risks to the growth outlook will not only come from external uncertainties, but also from the domestic side, particularly household debt, which remains high.
"The risks are primarily related to public sector and household debt, along with pockets of vulnerabilities in the corporate sector," the IMF said.
Federal debt and contingent liabilities are relatively high, which, it warned in its assessment, would limit policy space to respond to shocks.
With the target towards a near-balanced federal budget by 2020, the IMF said that this will help alleviate risks from elevated government debt levels and contingent liabilities, and build fiscal space.
While the monetary policy stance by Bank Negara Malaysia is appropriate, it also welcomes the commitment to keeping the exchange rate as the key shock absorber.
Foreign reserves would, however, need to be increased as a buffer in the event of disorderly market conditions.
The IMF also supports Malaysia’s emphasis on increasing female labour force participation, improving the quality of education, lowering skills mismatch, boosting productivity growth, encouraging research and innovation, and upholding high standards of governance.
The Fund expects the Consumer Price Index (CPI) to average 2.7 per cent on the back of higher global oil prices and the rationalisation of subsidies on cooking oil, while the current account surplus will be largely unchanged.