FOR IMMEDIATE RELEASE
Washington, DC – March 17, 2021: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Malaysia.
Malaysia’s economy entered the pandemic from a strong position but has nevertheless been hit very hard. GDP declined by an estimated 6 percent in 2020 as private investment and consumption, which had been the main drivers of growth in recent years, decelerated sharply. Unemployment reached a historic high in May 2020, and inflation has been subdued. The global risk-off episode in March 2020 triggered capital outflows from EMs such as Malaysia, but a swift and large global policy response helped stabilize markets, and inflows resumed starting late April. In Malaysia, a strong fiscal, monetary and financial policy response has helped cushion the economic shock from the pandemic and ensure financial stability. The current account registered a surplus due to both increased pandemic-related external demand for health-related and electronic equipment and weak imports.
The Malaysian economy is set to recover in 2021, with growth projected at 6.5 percent, driven by a strong recovery in manufacturing and construction. The recovery is expected to be uneven across sectors, resting on an improvement in both domestic and external demand. Inflation would recover to 2 percent and the current account surplus is on course to decline as demand for pandemic-related products starts receding and the rebound in domestic demand raises imports.
An intensification of the pandemic and materialization of other risks could derail the recovery. A protracted spread of the virus could prompt the authorities to tighten health and physical distancing measures, with negative impact on growth. Also on the downside, Malaysia’s open economy is vulnerable to escalating trade tensions and weaker-than-expected growth in trading partners. Domestic policy uncertainty could also dampen business confidence and investment, with negative impact on economy activity. On the upside, faster-than expected deployment of COVID-19 vaccines could raise growth.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors , and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.