KUALA LUMPUR (Nikkei Markets) - The World Bank Monday urged Malaysia's new government to step up fiscal reforms amid robust economic growth to make the country more resilient to potential future shocks.

Malaysia should diversify sources of fiscal revenue and rationalize non-essential operating expenditure, the multilateral agency said in its latest Economic Monitor report. The government should also restructure large-scale infrastructure projects and improve spending efficiency, it said.

"The historic outcome of Malaysia's recent elections provides an unprecedented opportunity for change," the World Bank said. "Malaysia is entering into a new period that offers an opportunity to strengthen structural reforms and to accelerate its convergence with high-income economies."

The World Bank kept its 2018 economic growth forecast for Malaysia at 5.4% and said inflation could lag expectation. While private consumption is expected to strengthen in the near term, public consumption is likely to slow, the World Bank said.

Malaysia has been trying to fix its finances and shrink a long-running budget deficit that stretches back to the Asian Financial Crisis. The previous government had abolished several subsidy programs that economists viewed as wasteful and levied a consumption-based tax to broaden its revenue base.

Mahathir Mohamad led the opposition coalition to a shock election victory last month on the back of several populist pledges that included scrapping of the unpopular goods and services tax and re-introduction of fuel subsidy. The new administration has also vowed to rein in debt and liabilities by scrapping costly capital projects.

Priority reforms in revenue should center on broadening base of the upcoming sales and services tax, expanding coverage of personal income tax, reviewing the existing tax incentives, and strengthening overall tax administration and compliance, the World Bank said.

On the expenditure side, reform efforts should aim at containing the "relatively sizeable" civil service salaries, untargeted subsidies, and discretionary spending, the agency said.

Meanwhile, the government plans to announce on Oct. 18 the mid-term review of the so-called 11th Malaysia Plan, the economic minister Mohamed Azmin Ali said.

"Issues and development challenges will be identified and steps to tackle them will be proposed," Azmin said. "Progressive socio-economic policies will be introduced to complement current institutional reforms."

Under the so-called 11th Malaysia Plan, the 2016-2020 program aims at raising national labor productivity and labor's income share after decades of growth largely fueled by investments in industries and infrastructure.

​ Malaysia's economic growth pace has decelerated, expanding 5.4% in the first quarter compared with the 5.9% pace in the final three-months of 2017. The new government has said it is confident that economy will grow 5.4% this year and it plans to announce next year's federal budget early November.

--Jason Ng