Malaysia’s economy remained robust in 2024, supported by strong domestic and external demand, according to the International Monetary Fund (IMF). In a statement concluding its 2025 Article IV consultation mission to the country, the IMF underscored the importance of continued reforms and fiscal prudence to navigate a challenging global environment.

Economic Growth and Inflation Outlook

Economic growth in Malaysia is projected to moderate slightly, from 5.0% in 2024 to 4.7% in 2025, amid uncertainties in the global landscape. “Risks to growth are tilted to the downside,” said Masahiro Nozaki, head of the IMF mission. He noted external pressures, including potential geoeconomic fragmentation, as key factors affecting investment growth. However, the implementation of large domestic investment projects could provide an upside to the outlook.

Inflation remained steady at 2.0% in 2024 but is expected to rise to 2.6% in 2025 due to tighter labor market conditions and planned reforms to the RON95 gasoline subsidy. The IMF cautioned that inflation risks are skewed to the upside, driven by global commodity price shocks and domestic wage pressures.

Fiscal and Monetary Policy Recommendations

The IMF welcomed Malaysia’s commitment to fiscal consolidation, including the passage of the Public Finance and Fiscal Responsibility Act in 2023 and ongoing subsidy reforms. The Fund emphasized the need for “high-quality, durable revenue and expenditure measures” to rebuild fiscal buffers and meet medium-term deficit and debt targets.

Targeted cash transfers to vulnerable households were recommended to mitigate the impact of fiscal adjustments.

On monetary policy, the IMF described Bank Negara Malaysia’s current neutral stance as appropriate, advising readiness to tighten if inflationary pressures intensify. The Fund also stressed the importance of maintaining exchange rate flexibility to ensure economic resilience.

Structural Reforms and Financial Stability

The IMF praised Malaysia’s progress under the Economy MADANI Framework, highlighting the importance of timely structural reforms to boost productivity and inclusive growth. Key priorities include strengthening social safety nets through initiatives like the PADU digital registry and advancing the country’s transition to net-zero emissions.

Malaysia’s financial sector remains sound, with robust capital and liquidity positions among banks. While systemic risks appear contained, the IMF recommended vigilance in areas such as leveraged borrowing, bank-nonbank interlinkages, and climate and cyber risks.

Looking Ahead

“Malaysia’s strong economic performance provides the country with a window of opportunity to advance its ambitious reform agenda,” Nozaki stated, urging further efforts to enhance governance and prepare for challenges like artificial intelligence integration.

The IMF’s findings will be detailed in a report to be reviewed by its Executive Board in the coming months. The mission team extended its gratitude to the Malaysian authorities and stakeholders for their cooperation and constructive discussions.