IMF Executive Board Concludes 2018 Article IV Consultation with Malaysia
IMF News, March 7, 2018
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- Published: March 7, 2018
Background and Recent Performance
- Malaysian economy showed resilience despite external shocks; progress toward high income status and improving inclusion.
- Median household income has risen further and the national poverty ratio declined.
- Real GDP growth (2017, est.): 5.8 percent, driven by domestic demand and robust exports.
- Headline consumer price inflation (2017): 3.8 percent; core inflation and credit growth are contained.
- Current account surplus (2017, est.): 2.8 percent of GDP, helped by strong exports.
Outlook and Risks
- Growth projections:
- 2018: 5.3 percent (projected), starting to decelerate from 2017 peak but remaining above potential.
- Medium term: convergence to potential rate of close to 5 percent.
- Inflation:
- 2018 headline inflation expected: 3.2 percent.
- Core inflation response to positive output gap partly offset by lower oil-price contribution.
- External balance:
- 2018 current account surplus expected to soften to 2.4 percent of GDP as export growth normalizes.
- Risks to the growth outlook are balanced:
- External downside risks: global retreat from cross-border integration; structurally weak advanced-economy growth; significant China slowdown.
- External upside risks: speedy approval and implementation of CPTPP; lingering strong global demand for electronics.
- Domestic downside risks: exposures in real estate sector.
- Domestic upside risk: stronger-than-anticipated confidence effects related to the cyclical upturn.
Executive Board Assessment and Policy Guidance
- Directors commended authorities for strong and resilient performance underpinned by accommodative monetary policy and gradual fiscal consolidation.
- Emphasis on supporting economic growth while maintaining stability and raising productivity through structural reform.
- Fiscal policy:
- Directors agreed with planned pace of fiscal consolidation in 2018 to build buffers while maintaining financial market confidence.
- Supported a gradual consolidation path consistent with the authorities’ fiscal anchor to build additional fiscal space.
- Advised that consolidation should prioritize higher revenue to facilitate fiscal measures supporting external rebalancing.
- Encouraged progress on fiscal structural agenda, including strengthening fiscal transparency and risk management.
- Monetary policy and exchange rate:
- Directors supported the January increase in the monetary policy rate and the current stance biased toward less accommodation while remaining supportive of demand.
- Recommended that monetary policy and exchange rate flexibility remain the first line of defense against shocks.
- Financial markets and capital flows:
- Welcomed improvements in depth and liquidity of onshore financial markets following FMC measures that liberalized and increased flexibility of onshore hedging instruments, and a general rebound of capital inflows to emerging markets.
- Supported the FMC’s consultative approach; encouraged authorities to address further gaps in financial market development.
- Some Directors urged phasing out measures assessed by staff as capital flow management measures (in a manner that preserves financial stability); a few Directors favored openness to other approaches to development objectives.
- Directors urged continued constructive dialogue with IMF staff.
Financial Sector and Housing
- Directors agreed that financial sector risks appear contained: sound bank profitability and liquidity; low nonperforming loans.
- Vulnerabilities noted: household mortgages and the property development sector require vigilance.
- Recommendations:
- Take necessary steps to mitigate household and property sector risks.
- Encourage development of a rental real estate market.
- Authorities committed to further actions to address deficiencies in Malaysia’s AML/CFT framework.
Structural Policies and Labor Market
- Commended emphasis on raising productivity and investment; encouraged further labor market reforms.
- Priority measures recommended:
- Encourage female labor force participation.
- Improve quality of education.
- Reduce skills mismatches.
- Bolster public infrastructure and the regulatory framework to further encourage private investment.
Key Statistics and Indicators (as reported)
- Nominal GDP (2017, est.): US$314.4 billion
- Population (2017, mid-year): 32 million
- GDP per capita (2017, current prices, est.): US$9,808
- Poverty rate (2016, national poverty line): 0.4 percent
- Unemployment rate (November 2017): 3.3 percent
- Adult literacy rate (2015): 94.6 percent
- Main exports (share in total goods exports, 2016): electrical & electronic products (36.5 percent), and commodities (13.5 percent)
- Selected annual indicators (Est./Proj. table excerpts):
- Real GDP (percent change): 2013: 4.7; 2014: 6.0; 2015: 5.0; 2016: 4.2; 2017: 5.8; 2018: 5.3
- Total domestic demand (2017): 6.4
- Private consumption (2017): 5.6
- Private investment (2017): 9.2
- Public gross fixed capital formation (2017): -0.6
- Net exports (contribution to growth, 2017): -0.1
- Saving and investment (in percent of GDP):
- Gross domestic investment (2017): 25.7
- Gross national saving (2017): 27.9
- Fiscal sector (in percent of GDP):
- Federal government overall balance 1/ (2017): -3.0
- Federal government overall balance 1/ (2018, proj.): -2.8
- Revenue (2017): 16.7
- Revenue (2018, proj.): 16.6
- Expenditure and net lending (2017): 19.3
- Federal government non-oil primary balance (2017): -3.5
- General government debt 3/ (2017): 53.6
- General government debt 3/ (2018, proj.): 52.4
- Of which: federal government debt (2017): 50.1; (2018, proj.): 48.9
- Inflation and unemployment (annual average, in percent):
- CPI inflation: 2015: 2.1; 2016: 3.1; 2017: 3.8; 2018 (proj.): 3.2; 2019 (proj.): 2.8
- CPI inflation (excluding food and energy): 2015: 1.3; 2016: 2.6; 2017: 1.6; 2018 (proj.): 2.2
- Unemployment rate: 2015: 3.3; 2016: 2.9; 2017: 3.5; 2018 (proj.): 3.4; 2019 (proj.): 3.0
- Macrofinancial variables:
- Broad money (percentage change, 2017): 8.5
- Credit to private sector (percentage change): 2013: 10.2; 2014: 8.6; 2015: (not shown); 2016: (not shown); 2017: (not shown)
- Credit-to-GDP ratio (in percent) 4/ 6/: 2013: 129.7; 2014: 130.1; 2015: 134.7; 2016: 134.0; 2017: 126.4; 2018 (proj.): 123.7
- Credit-to-GDP gap (in percent) 4/ 6/: 2013: 15.7; 2014: 12.7; 2015: 13.5; 2016: 9.4; 2017: …
- Overnight policy rate (in percent): 3.00
- Three-month interbank rate (in percent): 3.25; 3.9
- Nonfinancial corporate sector debt (in percent of GDP): 2013: 99.8; 2014: 98.6; 2015: 106.7; 2016: 109.5; 2017: 104.2; 2018 (proj.): 103.1; 2019 (proj.): 102.1
- Household debt (in percent of GDP): 2013: 86.1; 2014: 86.8; 2015: 89.0; 2016: 88.3; 2017: 84.6; 2018 (proj.): 82.5; 2019 (proj.): 80.7
- Household financial assets (in percent of GDP): 2013: 187.0; 2014: 182.1; 2015: 183.1; 2016: 181.5; 2017: 177.6
- House prices (percentage change): 2013: 10.9; 2014: 6.9; 2015: 5.1; 2016: 5.2
- Malaysian ringgit/U.S. dollar (period average): 2013: 3.15; 2014: 3.27; 2015: 3.91; 2016: 4.15; 2017: 4.31
- Real effective exchange rate (percentage change): 2013: 0.5; 2014: -0.7; 2015: -7.9; 2016: -4.3; 2017: -1.5
- Balance of payments (in billions of U.S. dollars) 4/:
- Current account balance (2013–2017): 11.3; 14.8; 9.0; 8.9; 8.3
- Current account balance (In percent of GDP): 2.4
- Goods balance (2013–2017): 30.6; 34.6; 28.0; 24.4; 27.1; 28.6; 30.7
- Services balance (2013–2017): -3.3; -5.3; -4.6; -5.8; -6.4
- Income balance (2013–2017): -16.3; -16.5; -13.7; -12.8; -13.3; -14.4; -15.8
- Capital and financial account balance (2013–2017): -24.3; -14.5; 3.6
- Direct investment (component): -2.0; -5.5; 1.0; 0.3
- Errors and omissions (2013–2017): -1.7; -4.9; 0.0
- Overall balance (2013–2017): 4.6; -11.2; 7.7; 11.7
- Gross official reserves (US$ billions) (2013–2019): 134.9; 115.9; 95.3; 94.6; 102.4; 113.3; 125.0
- Reserves (In months of following year's imports of goods and nonfactor services): 7.5
- Reserves (In percent of short-term debt by original maturity) 4/: 130.7; 111.6; 116.2; 112.5; 111.7; 123.9; 143.6
- Reserves (In percent of short-term debt by remaining maturity) 4/: 91.8; 78.3; 74.4; 71.5; 72.1; 79.0; 87.2
- Total external debt (in billions of U.S. dollars) 4/ (2013–2019): 212.3; 213.4; 195.0; 204.2; 217.3; 221.2; 227.5
- Total external debt (In percent of GDP) 4/ (2013–2019): 65.7; 63.1; 65.8; 68.9; 69.1; 63.0; 58.6
- Short-term external debt (in percent of total, original maturity) 4/: 48.6; 48.7; 42.0; 41.2; 42.2; 41.3; 38.3
- Short-term external debt (in percent of total, remaining maturity) 4/: 69.3; 69.4; 64.7; 65.4; 64.9
- Debt service ratio (In percent of exports of goods and services) 7/: 17.9; 21.4; 23.5; 22.7; 23.0; 23.1
- Debt service ratio (In percent of exports of goods and nonfactor services): 18.4; 24.9; 24.1; 24.5
- Memorandum item:
- Nominal GDP (in billions of ringgit): 2013: 1,019; 2014: 1,106; 2015: 1,158; 2016: 1,230; 2017: 1,352; 2018 (proj.): 1,467; 2019 (proj.): 1,584
Source: IMF Press Release No. 18/73 — IMF Executive Board Concludes 2018 Article IV Consultation with Malaysia (March 7, 2018).