SINGAPORE, April 11 — Malaysia’s macroeconomic policies are broadly adequate to adjust to external headwinds, says the World Bank.

It said the government needed to accelerate productivity-enhancing reforms, raise competition in the economy and unlock supply-side constraints.

“Lower commodity prices and public revenue call for improving the efficiency of public spending,” it said in its East Asia and Pacific Economic Update April 2016 released today.

With the growing cost of living and softer labour markets, more targeted social protection policies would protect the most vulnerable and reduce inequality, it said.

The report said Malaysia’s gross domestic product (GDP) growth was expected to moderate to 4.4 per cent in 2016, with private consumption growth to remain subdued.

It said relatively high levels of household indebtedness had stabilised, reducing vulnerabilities to financing shocks.

“Credit growth is expected to moderate but access to finance will remain conducive to economic activity.

“Overall financing costs are expected to remain stable with adequate liquidity in the system and healthy financial indicators,” it said.

The global lender said, however, that external headwinds remained strong and fiscal policy remained constrained by depressed commodity prices.

In January 2016, it said, the government adopted a revised public budget for 2016, reducing expenditure in line with lower revenue growth.

“This is expected to preserve the fiscal deficit goal for 2016 (3.1 per cent of GDP) while additional revenue measures announced create additional fiscal buffers,” it said.

Global financial market volatility made the outlook for bank liquidity and credit demand in Malaysia less certain while lower commodity exports were expected to reduce the current account balance to around 2.3 per cent in 2016.

The World Bank said moderation in domestic demand and commodity prices should keep inflation below 3 per cent in 2016, and noted that downside risks remained for Malaysia.

It said confidence and spending remained subdued owing to exchange rate depreciation, fiscal consolidation and the rising cost of living.

“Malaysia’s open economy remains exposed to lower global trade, particularly in China,” it said.

“Lower commodity prices could further erode Malaysia’s fiscal position, external balances and GDP growth.”

In earlier reports, Bank Negara Malaysia said it expected the Malaysian economy to grow at 4-4.5 per cent in 2016 from 5 per cent in the previous year. — Bernama