The Executive Board of the International Monetary Fund (IMF) has concluded its Article IV consultation with Malaysia, endorsing the staff appraisal on a lapse-of-time basis. This decision was made on February 25, 2025, following an assessment of Malaysia's economic performance and policy measures.
In 2024, Malaysia's economy showed significant improvement, growing by 5.2% year-on-year in the first three quarters. The growth was driven by strong private consumption, investment, external demand for electrical and electronic products, and a recovery in tourism. The labor market remained robust with an unemployment rate of 3.2% in the third quarter of 2024. Inflation stayed stable at around 2%, while the Malaysian ringgit appreciated against the U.S. dollar by 2.6%.
Current government policies are aimed at rebuilding fiscal buffers and enhancing growth potential while maintaining macroeconomic stability. The Public Finance and Fiscal Responsibility Act (FRA), enacted in 2023, is a key part of these efforts to strengthen fiscal management. Fiscal consolidation efforts reduced the overall fiscal deficit from 5% of GDP in 2023 to an estimated target of 4.3% in 2024.
The IMF's Executive Directors noted that "Malaysia’s favorable economic conditions provide a window of opportunity to build macroeconomic policy buffers and accelerate structural reforms." Growth is expected to continue with a projected rate of 4.7% in 2025.
However, risks remain, primarily from external factors such as geopolitical tensions and economic slowdowns among major trading partners. Inflation risks could rise due to global commodity price shocks and wage pressures.
The IMF recommends continuing fiscal consolidation efforts to meet medium-term targets under the FRA and suggests achieving a small structural primary balance by 2027. The gradual phasing out of remaining fuel subsidies is also advised alongside revenue mobilization efforts.
Monetary policy remains appropriate according to current data, but Bank Negara Malaysia should be prepared to adjust if inflation risks increase. Financial systemic risks appear contained with sound financial sector conditions.
Structural reforms are encouraged for productivity enhancement and inclusive growth. Efforts towards digitalization through initiatives like the PADU digital registry are underway to improve social safety nets and public service delivery.