Malaysia must continue advancing long-term structural reforms to realise its aspiration of high-income nation status, even as near-term risks such as a global trade war and escalating geopolitical tensions loom large. According to Bank Negara Malaysia (BNM), the country now stands at a critical juncture, where a firm commitment to deeper reforms is essential to navigate an increasingly complex global economic environment.

In the central bank’s 2024 economic and monetary review, it stressed that the positive momentum seen in the past year offers a solid foundation on which to build. It credited recent progress to thoughtful policy design and timely implementation, particularly in key areas such as fiscal discipline and the enhancement of Malaysia’s investment ecosystem. These efforts, while commendable, represent only the initial phase. The coming years will require more ambitious and comprehensive reforms to confront a rapidly evolving landscape marked by global uncertainties.

BNM highlighted that supply shocks—driven by geopolitical tensions, deglobalisation, demographic shifts, and climate change—are expected to become more frequent, more severe, and longer lasting. In light of this, policymakers must be equipped not only with effective tools, but also with the institutional strength to respond swiftly and decisively. Strong inter-agency cooperation will be crucial to fully understand the direct and spillover effects of policy measures, particularly in sectors such as logistics and manufacturing. Regular engagement with industry players will also be vital for shaping informed responses to emerging challenges.

Monetary policy, BNM argued, cannot operate in a vacuum. It must be complemented by well-coordinated fiscal policies, particularly in addressing supply-driven disruptions. Targeted cash transfers, for instance, can cushion the financial burden on vulnerable households, provided such support is carefully calibrated to avoid fuelling excessive demand and inflation. At the same time, public communication plays a vital role in managing expectations. Clear explanations of how various policy tools interact, and how reforms will improve fiscal sustainability and reduce market inefficiencies, are key to fostering public trust and avoiding panic or misinterpretation.

The central bank also underlined the importance of transparent and consistent communication in anchoring inflation expectations. Particularly during periods of structural adjustment, messages must clarify that any inflationary effects stemming from reform measures are temporary.

As global headwinds gather, BNM maintains that long-term reform remains not just a strategic choice, but an urgent necessity. By strengthening its institutional frameworks, aligning fiscal and monetary strategies, and maintaining a transparent policy narrative, Malaysia can position itself to weather economic shocks while advancing towards high-income status.

(Source: BNM)

• TAGS:
• Bank Negara Malaysia
• BNM
• Dato’ Seri Abdul Rasheed Ghaffour
• Structural Reforms
• Supply Shocks