IMF optimistic Malaysia’s economy will expand 5.75% in 2022

The International Monetary Fund (IMF) is optimistic that Malaysia’s economy will expand by 5.75% in 2022, driven by pent-up domestic demand and continued strong external demand.

This is in line with the government’s growth projection of between 5.3% and 6.3% for 2022. The economy expanded by 3.1% last year.

In providing an assessment of Malaysia’s growth prospects, the IMF noted that the country’s high vaccination rates and limited movement restrictions would also support economic expansion.

On the flipside, the Washington-based agency acknowledged that there were substantial downside risks, including from the Covid-19 pandemic and the war in Ukraine, a similar predicament faced by both developed and developing economies globally.

“Malaysia’s growth is projected to be solid in the medium term, although risks of long-term economic scarring are real,” IMF’s executive board said in its conclusions following consultations with Malaysian officials in an assessment report released in April.

The IMF also welcomed Malaysia’s accommodative monetary policy stance, as inflation expectations are well anchored.

To this end, the IMF noted Malaysia’s commitment to exchange rate flexibility, saying it would continue to serve the country well.

This was reinforced just last week when Bank Negara Malaysia reaffirmed its position that it would not peg the ringgit despite the apparent weakness of the currency.

This was because the banking sector was still well capitalised and highly liquid, buttressed against a strong asset quality.

The IMF also said that Malaysia’s financial sector “remains resilient”, and that it was encouraged by its reforms which focused on inclusion, economic transformation, and a sustainable economy.

The IMF, which has 190 member countries, also praised the implementation of the 12th Malaysia Plan which focuses on boosting labour productivity, enhancing the digital and green economies, and strengthening fiscal governance.

“This will help minimise pandemic-related economic scarring while promoting inclusive growth and job creation,” the IMF said.

It also took note of the assessment by IMF staff that Malaysia’s external position was moderately stronger than warranted by economic fundamentals and desirable policies.

The IMF also called for policies to strengthen social safety nets to support an inclusive recovery and facilitate external rebalancing, which Malaysia is already doing through its multi-billion ringgit Covid-related budgeting.

In reviewing 2021, the IMF said the swift, substantial, and multi-pronged pandemic policy response supported the economy.

Total Covid-related budget spending amounted to RM39 billion (about 2.5% of GDP) in 2021, more than double the RM17 billion initially budgeted, and above the RM38 billion spent in 2020.

As a result, the federal government’s deficit reached about 6.5% of GDP in 2021, higher than the about 5.5% deficit foreseen in Budget 2021.

The federal government’s debt is estimated at 63% of GDP, below the domestic debt ceiling of 65%, it said.