KUALA LUMPUR: The Asean+3 Macroeconomic Research Office (Amro), which expects Malaysia to achieve 4.7 per cent economic growth this year, has asked regulators to stand ready to adjust monetary policy to contain inflationary pressure, reduce deficit and debt and build up its foreign reserves.
These were some of the preliminary assessments made by Amro during its annual consultation visit to Malaysia from June 25 to July 5, 2024.
The Amro team was led by principal economist Runchana Pongsaparn, while Amro director Kouqing Li and chief economist Hoe Ee Khor participated in the key policy meetings.
The discussions focused on the risks and challenges facing Malaysia, and policy options to bolster economic growth, manage inflationary pressures, rebuild fiscal space and external buffers, as well as address long-term structural issues.
Amro commended Bank Negara Malaysia on its handling of period of execssive volatility in the ringgit by encouraging repatriation and conversion of foreign earnings but also highlighted the need to continue to build up its foreign reserves when market conditions allow.
The organisation said while rationalising the RON95 subsidy will generate significant fiscal savings, a gradual implementation with effective communication would prevent major inflationary shocks and enable proper assessment of policy impact.
" Major tax reforms, such as the reintroduction of the Goods and Services Tax, are crucial for achieving fiscal sustainability over the medium and long term."The recent enactment of the Public Finance and Fiscal Responsibility Act is much welcome, and the authorities are encouraged to expedite the tabling of the Government Procurement Act," it added.
Amro highlighted the need to accelerate structural reforms to tackle long-term challenges, including insufficient research and development spending, low innovation levels, and shortages in skills and talent.
These reforms are essential for industrial advancement and to support the country's goal of climbing the global manufacturing value chain.
"After a moderation to 3.6 percent last year, Malaysia's growth is projected to accelerate to 4.7 percent in 2024, underpinned by strong domestic demand and a pickup in external demand. Favourable labour market conditions and continued tourism recovery will support consumption, while realisation of record-high approved investments and implementation of national master plans will boost investment," said Dr. Pongsaparn.
"Inflation is expected to moderate to 2.3 percent this year, but faces upside risks from the rationalisation of fuel subsidies," he added.
Amro said the growth outlook could be weighed down by slower growth in major economies and potential adverse spillovers from the U.S. presidential election.
The inflation outlook also faces upside risks from global commodity price shocks and the government's planned subsidy rationalissation.
It said challenges in the medium to long term could arise from global economic fragmentation, increased talent outflows, insufficient retirement savings, drag from aging population, and the transition to a low-carbon economy.