Malaysia should broaden its tax base to strengthen fiscal resilience, says IMF

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Malaysia broadens tax base

Highlights

The IMF recommends that Malaysia broaden its tax base and reduce incentives and subsidies to strengthen fiscal buffers against global uncertainty.
The IMF expects Asia-Pacific growth to moderate to 4.8% in 2026 and 4.4% in 2027, compared with 5% in 2025, amid geopolitical, fiscal and inflation risks.
The IMF stresses the need for strong medium-term fiscal frameworks and targeted assistance, while central banks should continue prioritising price stability and be prepared to tighten policy if necessary.

This article was translated from the original. Read the original version by our correspondent here.

IMF recommendations on Malaysia’s fiscal measures

As reported by The Edge Malaysia, the International Monetary Fund (IMF) said Malaysia should continue fiscal consolidation by broadening its tax base, reducing incentives, cutting subsidies or improving subsidy targeting. IMF Asia and Pacific Department Director Krishna Srinivasan said these measures would help strengthen fiscal buffers as the global economy continues to face new shocks.

He said Malaysia and Brunei are the two ASEAN countries that export energy and have benefited from recent energy shocks. According to him, both countries have also maintained discipline in preserving price stability and fiscal integrity.

Srinivasan shared these views at a media briefing on the IMF’s latest Regional Economic Outlook for Asia and the Pacific, which presented the latest forecasts, analysis and policy recommendations for the region. The IMF also stressed that public debt levels in the region remain above pre-pandemic levels, making fiscal space increasingly limited.

Regional risks and policy implications

The IMF said Asia-Pacific economic resilience is supported by stronger-than-expected global growth, technology-related exports and investment, as well as robust trade diversification and intra-regional trade despite tariff-related disruptions. Export growth rose significantly in the first half of 2026, driven mainly by technology products as demand for artificial intelligence infrastructure boosted demand for semiconductors and investment in data centres.

However, the IMF warned that the region’s resilience is not without limits. Risks include renewed tensions in West Asia, a reassessment of artificial intelligence-related earnings and productivity, fiscal vulnerabilities, higher government borrowing costs, and an El Niño cycle that could add to fiscal and inflationary pressures.

Asia-Pacific growth is projected to moderate to 4.8% in 2026 and 4.4% in 2027, compared with 5% in 2025, although the region is still expected to account for more than two-thirds of global growth. On monetary policy, the IMF said central banks should continue to prioritise price stability, communicate clearly, and be prepared to tighten policy if inflation expectations become less well anchored or inflation proves more persistent.

Regarding fiscal support, the IMF stressed that assistance should protect those affected by economic shocks, rather than attempting to suppress prices across the board, while maintaining strong medium-term fiscal frameworks. Srinivasan also highlighted the need for structural reforms across Asia-Pacific, including addressing youth unemployment and skills mismatches, supporting adaptation to artificial intelligence, strengthening social protection, improving energy security through diversification and renewable energy, and deepening regional integration.

In our previous coverage of MARC Ratings’ warning following Budget 2027, we highlighted the need for Malaysia to build stronger fiscal buffers against recurring shocks such as geopolitical tensions, pandemics and climate events, alongside potentially persistently high borrowing costs. The article also outlined how fiscal space is becoming increasingly constrained as operating expenditure dominates, prompting proposals to broaden the tax base and improve fuel subsidy targeting to support fiscal consolidation.

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