KUALA LUMPUR (Dec 18): The International Monetary Fund (IMF) is projecting Malaysia’s economy to rebound by 7% in 2021, supported by both domestic and external demand, but said recovery will be uneven across sectors.
Exports, which were propped up in 2020 by strong pandemic-related demand for personal protective equipment and electronic products, will continue to underpin growth, said the IMF in a statement issued after its team conducted discussions via virtual meetings with Malaysia.
Inflation, on the other hand, is expected to rise to around 2% next year as electricity tariff rebates expire, fuel prices rise, and domestic demand recovers, said the world body.
The risks to the growth outlook are to the downside, said the IMF, adding that an intensification of the Covid-19 pandemic could derail the recovery.
“Malaysia’s highly open economy is vulnerable to escalating trade actions, weaker-than-expected trading partner growth, and global financial shocks. Domestic policy uncertainty also poses risks to recovery.
“On the upside, faster-than-expected availability of Covid-19 vaccines could accelerate the recovery,” said the IMF.
Noting that Budget 2021 strikes a balance between protecting the vulnerable, sustaining the economy, and initiating fiscal consolidation, the statement said if the pandemic intensified, the authorities should be ready to increase support to the economy.
“The authorities’ commitment to pursuing fiscal consolidation once the recovery is firmly entrenched is welcome, as such adjustment will be required to rebuild buffers,” said the IMF.
It said identifying specific revenue and spending measures and laying the groundwork for policy actions to reduce the deficit is a priority.
The IMF also said accommodative monetary and financial policies are appropriate and should continue until the recovery is securely underway.
Should downside risks materialize, Bank Negara Malaysia has sufficient space to further ease monetary policy, and the flexible exchange rate would also help, it noted.
“The financial sector’s buffers are helping weather the economic impact of the pandemic, keeping macro-financial risks contained for now.
“The authorities should stay the course on governance reforms, and anchor them in legislation. Articulating specific policies to foster a green, resilient, equitable recovery and productivity growth would support the authorities’ medium-term objectives and help Malaysia reach high-income status,” said the IMF.