KUALA LUMPUR: The International Monetary Fund (IMF) has commended Malaysia's commitment to implementing economic structural reforms and recognised the strength of its monetary policy and financial system stability.
The IMF, in a statement following completion of discussions with Malaysian authorities and other stakeholders during the 2025 Article IV Consultation, described the country's economy as continuing to perform well, with inflation remaining low and stable this year.
Malaysia's strong economic performance offers a valuable opportunity to accelerate its ambitious reform agenda, it added.
The IMF said the government's structural reform initiatives under the Madani Economic Framework are well-directed and appropriately prioritised.
"The passage of the landmark Public Finance and Fiscal Responsibility Act (FRA) in 2023 marked a significant milestone for fiscal management and governance."
The IMF highlighted the importance of rebuilding fiscal buffers, enhancing growth potential and bolstering social protection amid a growingly uncertain global landscape, all while maintaining macroeconomic and financial stability.
"Supported by strong domestic and external demand, (Malaysia's) economic performance has significantly improved in 2024. Growth is projected to moderate from 5.0 per cent in 2024 to 4.7 per cent in 2025, reflecting a moderation in investment growth, including from rising global uncertainty.
"Inflation has been stable at about two per cent (year-on-year) so far in 2024. Assuming the implementation of RON95 gasoline subsidy reforms in mid-2025 and tighter labour market conditions, average headline inflation is projected to rise from 2.0 per cent in 2024 to 2.6 per cent in 2025," it said.
The IMF also commended the authorities for their commitment to ongoing fiscal consolidation and the retargeting of RON95 gasoline subsidies.
To restore fiscal buffers and achieve the medium-term deficit and debt targets outlined in the FRA, the IMF staff recommended sustained fiscal consolidation measures.
"Staff recommends continued fiscal consolidation, supported by high-quality, durable revenue and expenditure measures, notably continued revenue mobilisation 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," it added.
The IMF said the timely implementation of the authorities' ambitious structural reform agenda is crucial for boosting productivity and fostering inclusive growth.
"Strengthening social safety nets should be prioritised, including through developing the Pangkalan Data Utama 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 statement said.
The IMF advised that, moving forward, monetary policy should remain responsive to economic data.
Bank Negara Malaysia, it said, should be ready to tighten monetary policy if inflation risks increase, while also emphasising the importance of maintaining exchange rate flexibility.
"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," it said.
The IMF added that ongoing vigilance is necessary regarding highly leveraged borrowers, the connections between banks and non-bank financial institutions, as well as climate and cyber risks, although the spillover effects from these areas remain manageable.