KUALA LUMPUR: The International Monetary Fund (IMF), which is expected to applaud Malaysia’s resilience against headwinds in an upcoming report, has suggested that the government publish an annual list of potential risks to the nation’s finances.
Such a list of contingent liabilities had been effective in many countries to help appease public fears on the high public debt level and build public confidence, said IMF deputy managing director Mitsuhiro Furusawa.
In accounting, a contingent liability is recorded if the contingency is probable and the amount of the liability can be reasonably estimated.
“Contingent liabilities are relatively high for Malaysia, so it is important that the authorities carefully monitor the risks,” he told NST Business in a recent interview.
Furusawa said the list could be included in the government’s fiscal budget report preparations as an appendix, or as separate reports, and used to develop risk mitigation strategies.
He lauded the government for setting up the fiscal risk and contingent liability technical committee in May last year to evaluate Malaysia’s fiscal risks and contingent liabilities as well as come up with appropriate measures.
IMF considers contingent liabilities as one of the largest sources of fiscal risks and fiscal distress.
Malaysia’s current debt burden is around 53 per cent of the gross domestic product (GDP).
“(Malaysia’s) progress in fiscal consolidation efforts is good and it is quite important the authorities, having anchored that in the medium fiscal policy of achieving near balance federal budget by 2020, continue to make progress towards this objective,” said Furusawa.
He held a series of meetings after arriving in Malaysia last Wednesday before leaving for Singapore on Friday.
An IMF mission had concluded its annual assessment of Malaysia in its annual Article IV consultation visit, and the report will be up for discussion by the executive board in two weeks.
“Despite the headwinds, Malaysia continues to perform well, supported by the resilience which I mentioned earlier and by a diversified economy, flexible exchange rate, sound macro economy policies and credible institutions,” said Furusawa, who has served as special adviser to Japanese Prime Minister Shinzo Abe and the Japanese finance minister previously.
IMF’s projections are for a moderate pick-up in Malaysia’s economic activities this year, with the economy expected to grow by 4.5 per cent.
On risks, Furusawa said they also emanated from global growth risks such as commodity prices, political tensions and uncertainty, and the current inward-looking trend.
“Asia is right now a global engine and remains a growth corridor. It is exciting times to work with countries in the region,” said Furusawa, who oversees 92 of the 189 IMF member countries since he took office two years ago.
The infrastructure boom augurs well for the region as investments will boost productivity and growth, while trade remains a significant engine of growth for countries like Malaysia.
Asked about risks to emerging markets as the United States economy got back on track, Furusawa said the details and specific processes of United States President Donald Trump’s administration had to be studied for their implications.
“For Malaysia, the balance sheet’s strength, the flexible exchange rate and credible institutions like Bank Negara Malaysia can support the resilience of the economy from external shocks,” he added.
A flexible exchange rate stands as the first line of defence while the international reserves in central banks can be used in the case of disorderly financial conditions.