KUALA LUMPUR: The International Monetary Fund (IMF) gave the thumbs-up to Malaysia for its resilient economy in recent years as well as its financial system.
Real GDP growth has surprised on the upside, growing at 5.9 per cent year-over-year in the first three quarters of 2017.
In its preliminary findings following its annual visit for the 2018 Article IV Consultation, mission leader Nada Choueiri said:
“Risks to the near–term outlook are balanced.
“Strong global demand for electronics, which has benefitted Malaysia’s exports, could last longer than anticipated, while downside risks include policy uncertainty in advanced economies and tighter global financial conditions.“
Going forward, striking the right balance in policies will be key, she said.
On the monetary policy stance, she said Bank Negara Malaysia should be ready to raise the policy rate should leading indicators suggest the emergence of overheating pressures.
“Continued reliance on exchange rate flexibility and macroeconomic policy adjustments should be the first line of defence against capital flow shocks.”
The IMF team welcomed the central bank’s consultation with market participants in developing onshore financial markets.
Continuous communication on initiatives to deepen these markets over time would help further build confidence.
“The financial sector is resilient. Bank profitability and liquidity are sound, and corporate access to credit remains healthy.”
While housing price growth has moderated, pockets of risks exist in exposures to household mortgages and the property development sector. “However, their impact on macro-financial stability appears contained.”
The planned fiscal consolidation pace for 2017–18 is appropriate, and will help build buffers and maintain financial market confidence.
“ In the medium term, fiscal policy should follow a gradual consolidation path, and the composition of adjustment could be improved to make it more revenue-based and to make room for the structural reforms and increased social spending for inclusive growth.”
The team also suggested that medium term fiscal targets be better communicated.
The team visited Putrajaya and Kuala Lumpur from November 28 till December 8 and exchanged views with senior government officials and Bank Negara Malaysia (BNM), apart from representatives from the private sector and think tanks.
The report is expected to be presented to the executive board of the IMF in February 2018.