KUALA LUMPUR (Dec 4): World Bank expects Malaysia's growth to decelerate to 4.2% in 2016 as commodity prices will likely remain soft, while global trade growth slows.

"We estimate that Malaysia would register a GDP growth of 4.7% in 2015, and to slowdown in 2016. By slowing down, I mean probably [a growth of] about 4.2%," World Bank East Asia and Pacific Region's chief economist Dr Sudhir Shetty told reporters today, after delivering his presentation at the 10th Asia Economic Summit.

"Global economic outlook remains uncertain; China's growth will likely continue to slow and shift away from investment, while US interest rates will likely rise soon, affecting the cost and availability of capital," he said.

Navigating these uncertainties will require continued macroeconomic prudence in the short term and sustained structural reforms in the longer term, he said.

"In the short term, Malaysia will have to improve its tax administration, like limiting the GST (goods and services tax) exemptions and expanding the personal income tax base, to enhance to country's revenue further, [especially] in times when crude oil prices are low," he said.

But Shetty warned that how the govenrment's tax policy is implemented will be crucial, as it could lead to lower domestic consumption.

"Of course, when it comes to tax administration, the government will have to implement it to be effectively taxing the high income group, so as to minimise the impact on domestic consumption," he suggested.

Given the current developmental challenges that the country faces, Shetty said Malaysia will have to sort out its priorities for the short, medium and long-terms.

"There is little room for counter-cyclical macroeconomic policies. So Malaysia need to deepen its structural reforms that could both enhance long term growth prospects and boost confidence," he said.

On the Trans Pacific Partnership (TPP) agreement, Shetty opined that Malaysia would be better off by participating in the trade pact.

"Of course, there are certain political costs that the country has to bear, but, overall, the economic gains outweigh the costs," he said.

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