By Judith Ugwumadu | 4 March 2015

Malaysia should consider broadening its revenue base and further improve its public financial management to minimise its dependency on oil-related income, the International Monetary Fund has said. 

Growth this year is expected to reach 4.8%, while lower energy prices will continue to be a drag on oil and gas production, the fund said.

Recently, Malaysia has increased its electricity tariffs, removed poorly targeted fuel subsidies, introduced a Goods and Services Tax (GST) and revised its budget deficit target to 3.2% from 3% of gross domestic product.

The IMF said that these should help broaden Malaysia’s revenue base and diversify it away from volatile oil and gas revenues. It said it would also create budgetary space for needed social and capital investment.

‘These reforms will help reinforce the sustainability of Malaysia’s public finances and make the fiscal system more effective in promoting efficiency, equity and growth,’ the fund added.

‘Directors commended the authorities’ continued commitment to fiscal prudence.’

But the IMF went on to warn that that a prolonged period of depressed commodity prices would require further fiscal adjustment.

The government has been encouraged ‘to consider broadening the revenue base, phase out remaining untargeted subsidies, and further improve public financial management and social transfers’.

The fund also said that Malaysia’s commitment to regional integration would also help support its transition to high-income status by further enhancing competition and productivity.