Thursday, December 19, 2013

IMF: M'sian Economy Shows Remarkable Resilient

KUALA LUMPUR: The International Monetary Fund yesterday commended Malaysia for its `adept management' of the economy against a difficult external environment this year. 
The economy showed remarkable resilience in weathering the global financial turbulence in mid-year, reflecting the depth of Malaysia’s financial markets, said its mission chief for Malaysia Alex Mourmouras. 

An IMF team led by Mourmouras, which just completed its annual Article IV Consultation for Malaysia following its visit to Kuala Lumpur and Penang from December 4 till 16, also commended the role of its exchange rate as a shock absorber, coupled with BNM’s strategy of intervening to avoid excessive volatility (in the currency). 

Malaysia’s near-term growth prospects are favourable. 

The Fund expects Malaysia to maintain its growth momentum at its projected 4.5 per cent for 2013 and 2014. 

"The momentum is underpinned by a pickup in private investment and stronger exports, which will more than offset mild headwinds from fiscal consolidation." 

The current account surplus, it added, is projected to narrow to about 3.5 per cent of GDP in 2013, and stabilise at around this level in 2014. 

The Federal Government is on track to reach its fiscal deficit target of 4 per cent of GDP in 2013. 

"The 2014 federal deficit target of 3.5 per cent of GDP is feasible if, as assumed in the mission’s baseline, growth in current spending is contained within a tight envelope." 

It noted that the government has taken important steps to strengthen fiscal management and policy in order to reduce debt and rebuild fiscal buffers. 

It welcomed the setting up of a high-level Fiscal Policy Committee, fuel and electricity subsidy rationalisation, and the introduction of Goods and Services Tax (GST) in April 2015. 

Although inflationary expectations are well anchored, it said vigilance will be required in order to preempt second round effects associated with the implementation of the minimum wage, subsidy cuts, and GST introduction. 

"Should the growth outlook deteriorate significantly, there is ample room for BNM to use monetary policy to support growth." 

It, however warned that the relatively high fiscal deficit and public debt levels provided limited space for a fiscal response and hence, any fiscal stimulus should be temporary and in a `credible medium term fiscal consolidation programme'. 

Structural reforms and the all-important subsidy rationalisation and GST implementation should not be delayed or compromised. 

The IMF also welcomed steps to strengthen financial supervision on the high household debt levels and other risks. 

The Financial Services Act and the Islamic Financial Services Act that came into force in July 2013 provides BNM with additional powers to supervise financial conglomerates. 


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