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Malaysia: Staff Report for the 2019 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
March 2019
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Fund Relations

(As of December 31, 2018)

I. Membership Status: Joined March 7, 1958; Article VIII

II. General Resources Account

SDR MillionsPercent of Quota
Quota3,633.80100.00
Fund holdings of currency (exchange rate)3,001.7882.61
Reserve tranche position632.0617.39
Lending to the Fund New Arrangement to Borrow28.83

III. SDR Department

SDR MillionsPercent of Allocation
Net cumulative allocation1,346.14100.00
Holdings821.8361.05

Exchange Arrangement:

On September 7, 2017, Bank Negara Malaysia notified the Fund that since the unpegging of the ringgit in July 2005, Malaysia’s exchange rate policy has gradually evolved, and the ringgit has been highly flexible, mainly driven by market force. Based on information on the exchange rate behavior, the de facto exchange rate regime is classified as floating, in line with the de jure classification.

Malaysia maintains bilateral payments arrangements with 7 countries. The authorities have indicated that these arrangements do not have restrictive features.

Malaysia continues to maintain a liberal foreign exchange administration policy. The current foreign exchange administration (FEA) rules include prudential measures to promote monetary and financial stability while safeguarding the balance of payments position and value of the ringgit. The FEA rules are continuously reviewed to ensure comprehensive policies conducive to the sustainable growth of the economy.

On December 2, 2016, the Financial Markets Committee (FMC) announced measures requiring the conversion of 75 percent of export proceeds into ringgits and extending to exporters the limit on foreign currency investment that applies to residents with ringgit borrowing. However, exporters can hold their export proceeds into foreign currency to meet projected loans, imports and other currency account obligations for up to six months ahead. Prior to these measures, the BNM also enhanced the enforcement of regulations, existing since 1998, on banks’ non-involvement in offshore ringgit transactions. In April 2017, FMC announced a second series of measures which came into effect May 2 and which increased flexibility and streamlined FX hedging facilities onshore. Additional measures were announced in September and November 2017 to help deepen the onshore financial market.

The Malaysian authorities view remaining FEA rules as prudential in nature and necessary to ensure the availability of adequate information on the settlement of payments and receipts as part of the monitoring mechanism on capital flows. These controls do not contravene Malaysia’s obligations under Article VIII. Malaysia has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains a system free of restrictions on the making of payments and transfers for current international transactions except for restrictions in place for security reasons notified to the Fund pursuant to Decision No. 144-(52/51).

Malaysia, in accordance with the UN Security Council resolutions implements the freezing without delay funds and other financial resources, including funds derived or generated from property owned or controlled directly or indirectly by the designated individuals and entities. These measures are maintained for the reasons of national and international security and have been notified to the Fund pursuant to the IMF Executive Board Decision No. 144 (52/51). Malaysia also restricts any dealings or transactions with Israeli/Israel-related entities/individuals as well as in Israeli Shekel; however, since these restrictions affect the underlying transactions themselves, they are not subject to Fund jurisdiction under Article VIII, Section 2(b).

Article IV Consultation:

Malaysia is on the standard 12˗month consultation cycle. Discussions for the 2018 Article IV consultation took place during November 28–December 18, 2017 (IMF Country Report No. 18/61). Staff discussions for the 2019 Article IV consultation were conducted on a mission to Kuala Lumpur during November 28–December 12, 2018. In addition, a staff visit took place during July 12– 18, 2018.

Financial Sector Assessment Program (FSAP) Participation:

Malaysia conducted its first FSAP in 2012 (IMF Country Report Nos. 13/52, 13/53, and 13/56–13/60).

Technical Assistance:

Fiscal Affairs Department (FAD): A joint workshop on tax policy with MOF was held in July 2016. A mission on expenditure review was conducted in December 2016. A Public Investment Management Assessment (PIMA) mission took place in May 2017. A seminar on treasury modernization was held in July 2017.

Legal Department (LEG): Missions were fielded in May and September 2011 to help draft a Centralized Asset Management Corporations Bill, in the context of a three-year project to assist Malaysia in implementing an asset forfeiture regime.

Monetary and Capital Markets Department (MCM): A mission on macrofinancial risk analysis and vulnerability analysis for corporate and financial institutions was conducted in October 2009. A workshop on monitoring financial risks was held in in May 2010. Technical assistance missions on stress testing capital markets was conducted in 2013.

Statistics Department (STA): A mission to assist with implementing the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) was conducted during May– June 2013. Technical assistance and training missions on Government Financial Statistics (GFS) were conducted in March 2017 and March 2018, respectively, and a follow-up GFS technical assistance mission is scheduled for March 2019.

Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT):

In November 2014, Malaysia’s AML/CFT regime was subject of an on-site assessment by the Asia Pacific Group on Money Laundering (APG) under the new methodology of the Financial Action Task Force (FATF), the global standard setter for AML/CFT. The Mutual Evaluation Report was published in September 2015. It concluded that overall Malaysia has a broadly robust legal AML/CFT framework with generally well-developed and implemented policies, but with a moderate level of effectiveness. The country developed an action plan to address the key deficiencies identified in the report. In February 2016, the FAFT granted full membership to Malaysia based on its commitments to continue improving its AML/CFT regime. The FATF will continue to monitor the country’s progress through its enhanced follow-up process.

Resident Representative/Advisor: None.

Statistical Issues

(As of January 2019)

I. Assessment of Data Adequacy for Surveillance
General: Data provision is broadly adequate for surveillance. However, further efforts to improve statistics for the consolidated general government and public sector are necessary.
National accounts: Currently, the Department of Statistics Malaysia (DOSM) publishes annual and quarterly estimates of GDP, compiled by the production and by the expenditure approach, at current and constant prices, with base year 2010, based on the 2008 SNA. The DOSM also disseminates annual estimates for gross disposable income, saving, and net lending for the economy. The quarterly data are released about one and a half month after the reference quarter.
Price statistics: The CPI and the PPI are available on a timely and comprehensive basis. From January 2016, the CPI basket of goods and services has been updated based on the Household Expenditure Survey 2014.
Government finance statistics: Adoption of accrual reporting is necessary to capture a consolidated view of both assets and liabilities. There is a need to improve the timeliness, detail, and availability of data on nonfinancial public enterprises (NFPEs) and the state and local governments. Dissemination of more detailed data on non-listed NFPEs’ assets and liabilities and domestic and foreign financing by type of debt instrument and holder would be desirable; efforts in this direction will require continued close collaboration among the Economic Planning Unit (EPU), the Treasury, the Department of Statistics Malaysia (DOSM), and Bank Negara Malaysia (BNM). There is also a need to disseminate more information on public private partnerships.
Monetary statistics: The monetary and financial statistics (MFS) are reported on a timely and regular basis and are broadly in conformity with the Fund’s data needs. The Bank Negara Malaysia (BNM) reports the standardized report forms (SRFs) 1SR for central bank and 2SR for other depository corporations for publication in the International Financial Statistics with a lag of about one month. There is a need to improve the institutional coverage of the financial corporations, sectorization of the domestic economy, and classification and valuation of financial instruments to ensure full adherence to the IMF’s Monetary and Financial Statistics Manual and Compilation Guide. In addition, due to the growing importance of insurance corporations, pension funds, and other financial intermediaries in Malaysia, coverage of MFS should be expanded to include these institutions.
Financial Soundness Indicators: The BNM reports the 12 core financial soundness indicators (FSIs) and one of the 13 encouraged FSIs for deposit taking institutions for posting on the IMF’s FSI website. FSIs are reported with a lag of one quarter.
Balance of payments: Department of Statistics Malaysia compiles and publishes quarterly balance of payments estimates in accordance with the sixth edition of the Balance of Payments Manual and the SDDS. The quarterly data are released about one and a half month after the reference quarter. The authorities improved reporting of BOP with much more detailed items in 2018. However, persisting large negative net errors and omissions need to be addressed. The international investment position data on other investment—assets and liabilities—are reported only in an aggregate form.
II. Data Standards and Quality
Malaysia subscribes to the Special Data Dissemination Standard (SDDS). It is using a timeliness flexibility option for general government operations (within six quarter lags after the end of reference year).
Malaysia: Table of Common Indicators Required for Surveillance(As of January 24, 2019)
Date of Latest ObservationDate ReceivedFrequency of Data6Frequency of Reporting6Frequency of Publication6
Exchange rates1/24/20191/24/2019DDD
International reserve assets and reserve liabilities of the monetary authorities11/15/20191/22/2019Bi WBi WBi W
Reserve/base money11/20181/2019MMM
Broad money11/20181/2019MMM
Central bank balance sheet11/20181/2019MMM
Consolidated balance sheet of the banking system11/20181/2019MMM
Interest rates21/24/20191/24/2019DDD
Consumer price index12/20181/24/2019MMM
Revenue, expenditure, balance and composition of financing3—general government420172018AAA
Revenue, expenditure, balance and composition of financing3—federal government2018:Q212/2018QQQ
Stocks of central government and central government guaranteed debt52018:Q212/2018QQQ
External current account balance2018:Q311/2018QQQ
Exports and imports of goods11/20181/2019MMM
Exports and imports of services2018:Q311/2018QQQ
GDP/GNP2018:Q311/2018QQQ
Gross external debt2018:Q311/2018QQQ
International Investment Position2018:Q311/2018QQQ

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market based and officially determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing is only available on an annual basis.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) state and local governments.

Including currency and maturity composition.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market based and officially determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing is only available on an annual basis.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) state and local governments.

Including currency and maturity composition.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A).

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