A significant decline in commodity prices will pose immediate risks for Malaysia, the World Bank says.
It says moderating demand from China and weak growth in advanced economies, combined with expanding supply from surging investments over the past five years suggest downside risks for commodity prices.
"Although Malaysia can cope with additional declines in prices, sharp downward movements could potentially lead to deficits in the current and fiscal accounts as well as slower economic growth from delays in energy related investments," the bank said in its eight Malaysia Economic Monitor report.
Themed "Harnessing Natural Resources", the report was launched last night by Minister in the Prime Minister's Department Senator Datuk Seri Abdul Wahid Omar.
In his speech, Abdul Wahid said Malaysia will prudently manage its natural resources towards achieving a sustainable and a high income nation by 2020.
Malaysia has been able to fully leverage on its endowments both in terms of natural resources and human capital.
"Natural resources is one of the key factors for our success, with rubber, palm oil and oil and gas," he added.
Meanwhile, the World Bank economist Frederico Gil Sander said not many countries have a good story like Malaysia, where investments totalled more than the 100 per cent of what was taken out of the ground.
The government encouraged commodity sectors to move downstream and industrialisation more broadly by easing foreign investment in manufacturing, reforming regulations and creating tax incentives.
National oil company Petronas acted as an oil fund as it kept some export earnings overseas and made significant direct investments domestically in downstream industries as well as in production abroad.
"This reduced the flow of foreign exchange into the economy (thus reducing exchange rate pressures), supported downstream diversification and built assets to provide for future generations," he noted.