ASIATODAY.ID, WASHINGTON – Malaysia’s economy remains resilient, but mounting global pressures and higher U.S. tariffs could pose serious risks in 2026, the International Monetary Fund (IMF) has warned. The assessment follows the IMF’s completion of its 2026 Article IV Consultation mission to Malaysia.
IMF Praises Malaysia’s Economic Strength Amid Global Uncertainty
In its end-of-mission statement released on December 19, 2025, the IMF said Malaysia has maintained solid economic performance despite heightened global trade tensions and policy uncertainty.
The IMF mission, led by Masahiro Nozaki, held discussions with the Malaysian government, Bank Negara Malaysia, and key stakeholders from December 8 to 19, 2025. According to the Fund, Malaysia’s growth in 2025 has been supported by strong domestic demand, rising investment, steady job creation, and a global technology-sector upcycle.
The IMF also highlighted the role of prudent macroeconomic and financial policies in underpinning economic resilience. In addition, the Malaysia–U.S. trade agreement signed in October 2025 helped reduce uncertainty for businesses and consumers. Still, the Fund cautioned that global uncertainty has become the “new normal.”
Growth Expected to Slow in 2026 as U.S. Tariffs Weigh
Despite the strong near-term outlook, the IMF projects that Malaysia’s economic growth will ease from 4.6 percent in 2025 to 4.3 percent in 2026, largely reflecting the impact of higher U.S. tariffs on Malaysian exports.
As a highly open economy, Malaysia remains exposed to several downside risks, including:
- A slowdown in global demand
- An escalation of protectionist trade measures
- Volatility in global financial markets
- A potential downturn in the AI-driven technology boom
At the same time, the IMF noted that upside risks could materialize if global trade talks make progress, tourism activity exceeds expectations, or structural reforms are implemented more rapidly.
IMF Urges Stronger Fiscal Buffers and Debt Reduction
The IMF welcomed Malaysia’s commitment to prudent fiscal management, citing the passage of the Public Finance and Fiscal Responsibility Act in 2023 and a steady narrowing of the fiscal deficit since 2022.
Malaysian authorities aim to: Reduce the fiscal deficit to 3.5 percent of GDP in 2026, Further lower it to 3.0 percent of GDP by 2028.
However, the IMF stressed that rebuilding fiscal buffers remains essential, as federal government debt stood at 64.6 percent of GDP at end-2024, still above pre-pandemic levels. The Fund also praised ongoing efforts to strengthen fiscal transparency and spending efficiency, including the enactment of the Government Procurement Act.
Inflation Stable, Monetary Policy Deemed Appropriate
Inflation in Malaysia averaged 1.4 percent between January and October 2025 and is expected to gradually return to its long-term average of around 2 percent. In this environment, the IMF assessed the current monetary policy stance as appropriate.
Looking ahead, the Fund advised that monetary policy remain data-dependent to anchor inflation expectations while supporting growth amid elevated global uncertainty. The IMF also welcomed Malaysia’s continued commitment to exchange rate flexibility and efforts to deepen the foreign exchange market.
Financial System Remains Sound, but Risks Persist
The IMF said systemic financial sector risks remain contained, with Malaysian banks maintaining strong capital and liquidity buffers. Corporate and household balance sheets were described as healthy, while the housing market remains stable.
Nevertheless, the Fund urged continued vigilance over: Highly leveraged households, Banks’ exposure to firms affected by U.S. tariffs, Linkages between banks and non-bank financial institutions.
While external funding risks are currently manageable, the IMF cautioned that ongoing monitoring is necessary given heightened global financial market volatility.
Structural Reforms Under 13th Malaysia Plan Seen as Critical
The IMF emphasized that swift implementation of structural reforms under the 13th Malaysia Plan (2026–2030) will be critical to achieving domestically driven and inclusive growth.
Key reform priorities include: Labor market reforms to raise private-sector wages, Reducing skills mismatches and underemployment, Increasing female labor force participation, Deepening trade and financial integration within ASEAN.
According to the IMF, stronger ASEAN integration could significantly enhance Malaysia’s long-term growth potential.
IMF Thanks Malaysian Authorities for Productive Engagement
The IMF concluded by thanking the Government of Malaysia, Bank Negara Malaysia, and private sector representatives for their constructive engagement during the mission. A full staff report will be prepared and submitted to the IMF Executive Board for further discussion. (AT Network)
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