Press Release No. 24/468

IMF Staff Completes the 2025 Article IV Mission to Malaysia

December 13, 2024

• The Malaysian economy has performed strongly in 2024, with low and stable inflation. Risks to growth are tilted to the downside, amid an uncertain global outlook, while risks to inflation are to the upside.
• Staff recommends continuing fiscal consolidation to rebuild fiscal buffers. The current monetary policy stance is appropriate, and monetary policy should be tightened if upside inflation risks materialize.
• Staff welcomes Malaysia’s economic reforms, notably the passage of the Public Finance and Fiscal Responsibility Act and the successful electricity and diesel subsidy reforms. It is important to accelerate reforms further toward an inclusive and resilient economy.

Washington, DC: An International Monetary Fund (IMF) team, led by Mr. Masahiro Nozaki, conducted discussions on the 2025 Article IV Consultation with the Malaysian authorities and other stakeholders during December 3-13, 2024. At the conclusion of the discussions, Mr. Nozaki issued the following statement:

“Malaysia’s strong economic performance provides the country with a window of opportunity to advance its ambitious reform agenda. The government’s structural reform plans under the Economy MADANI Framework are appropriately focused. The passage of the landmark Public Finance and Fiscal Responsibility Act (FRA) in 2023 marked a significant milestone for fiscal management and governance. In the face of an increasingly uncertain global environment, there is a need to rebuild fiscal buffers, augment growth potential, and strengthen social protection, while preserving macroeconomic and financial stability.

“Supported by strong domestic and external demand, the economic performance has significantly improved in 2024. Growth is projected to moderate from 5.0 percent in 2024 to 4.7 percent in 2025, reflecting a moderation in investment growth, including from rising global uncertainty. Risks to growth are tilted to the downside, mainly due to the uncertain global outlook, including external risks from deeper geoeconomic fragmentation. Meanwhile, upside risks could arise from the faster-than-envisaged implementation of large investment projects in Malaysia.

“Inflation has been stable at about 2 percent (year-on-year) so far in 2024. Assuming the implementation of RON95 gasoline subsidy reforms in mid-2025 and tighter labor market conditions, average headline inflation is projected to rise from 2.0 percent in 2024 to 2.6 percent in 2025. Risks to the inflation outlook are tilted to the upside, including from global commodity price shocks and potential wage pressures from increases in minimum wage and civil servants’ pay.

“The authorities’ commitments to ongoing fiscal consolidation and retargeting of RON95 gasoline subsidies are welcome. To rebuild fiscal buffers and meet the medium-term deficit and debt targets under the FRA, staff recommends continued fiscal consolidation, supported by high-quality, durable revenue and expenditure measures—notably, continued revenue mobilization efforts toward a more broad-based and efficient tax system, and further subsidy reforms that build on successful reforms of electricity and diesel subsidies. The subsequent impact of fiscal reforms on vulnerable households should be simultaneously mitigated by well-targeted cash transfers.

“The current neutral monetary policy stance is appropriate. Going forward, monetary policy should remain data-dependent. Bank Negara Malaysia (BNM) should stand ready to tighten monetary policy if the upside inflation risks materialize. Continuing to maintain exchange rate flexibility is essential.

“Malaysia’s financial sector remains sound. Banks’ capital and liquidity positions are robust. Credit growth, corporate and household balance sheets, and real estate markets would not pose systemic risks at this juncture. Continued vigilance is warranted against pockets of more highly leveraged borrowers, interlinkages between banks and non-bank financial institutions, and climate and cyber risks, although spillover risks from these areas remain contained.

“Timely implementation of the authorities’ bold structural reform agenda remains essential for enhancing productivity and inclusive growth. Strengthening social safety nets should be prioritized, including through developing the Pangkalan Data Utama (PADU) digital registry. Further efforts are warranted to facilitate Malaysia’s transition towards net-zero emissions and to enhance readiness for Artificial Intelligence. Staff welcomes ongoing efforts to strengthen governance and the anti-corruption framework.

“The IMF team would like to thank the officials of the Government of Malaysia and Bank Negara Malaysia, other public institutions, as well as representatives from the private sector for the productive discussions.”