Malaysia’s Economic Challenges

By John Richardson

Anwar_Ibrahim-edited.jpgBarisan Nasional (BN) has won Malaysia’s general election although Anwar Ibrahim (see picture on the left), leader of the opposition, has so far refused to concede defeat because he claims that there has been widespread election fraud.

Given that the Election Commission is part of the Prime Minister’s office, however, it seems very unlikely that the results of the election will not be validated.

Nevertheless, the PM, Najib Razak, failed to win the two-thirds parliamentary majority that political analysts say is needed for the smooth passage of further economic reforms.

A further stability risk is that he was selected in PM in 2009, replacing Abdullah Bawadi, in the hope that he could regain the two-thirds majority, which was first lost at the 2008 General Election. Najib could, therefore, himself be replaced.

And, as the Financial Times wrote in this article: “At first blush Malaysia has been doing well. In its latest report on the country the International Monetary Fund praised Mr Najib’s administration for its economic performance. Gross domestic product growth last year was 5.6%, which “surpassed expectations”.

“A massive ‘economic transformation programme’, involving billions of dollars of government investment in large-scale infrastructure, transport and industrial projects, has helped.

“Domestic demand is strong in a country that has one of the highest savings rates in the world at 34 per cent.

“Yet Malaysia was supposed to have started moving beyond a ‘middle-income trap’ by now. Last year’s GDP growth figure was barely above the 5.2 per cent achieved in the year Mohamad Mahathir, former prime minister, stepped down in 2003.

“The IMF [last week] lumped Malaysia with Thailand and Indonesia as laggards in raising their living standards as South Korea and Taiwan have.

“‘Malaysia has always been a very rich country. Its economy used to be one of the most envied at the end of the Mahathir period, but we see that it is not doing as well as other countries that are seen as our real competitors. It’s stuck,’ says Ooi Kee Beng of the Institute of Southeast Asian Studies in Singapore.”

The FT also warns that Malaysia’s public finances are among the worst in the region. Its debt-to-GDP ratio is forecast to rise to 53%, the highest in Asia after India and Pakistan.

Chua Hak Bin, head of emerging Asia economics at Bank of America Merrill Lynch in Singapore, also told the newspaper that both sides in the election “had largely ignored the fiscal reality of rising public and household debt, promising generous programmes if they are elected”.

He thinks that Malaysia’s household debt is the highest in Asia, having risen to 80.5% of GDP last year from 75.8% in 2011.

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