ABSTRACT

Since its independence, Malaysia has achieved rapid economic growth and significant poverty reduction, while keeping a relatively successful record of curbing inflation in comparison to other developing countries. Fiscal and monetary policy play major roles in guiding investment and spending behaviour to meet development and stabilisation goals in both the public and private sectors. This chapter provides an overview of fiscal and monetary policy in Malaysia, with attention to institutional foundations, the role of economic and political determinants in policy formulation and implementation, as well as interrelations among crises, economic restructuring and policy reforms. While political influence cannot be ignored in either policy area, recognition of the unsustainability of fiscal deficits as well as continued commitment to a balanced-risk approach in central banking may serve as important first steps in reorienting macroeconomic policies toward supporting private sector development and structural reforms.