After Tough 2015, Financial Malaise Hits Malaysia

Razlan Rashid
2016.02.04
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160204-MY-economy-620 A man monitors stock movements at a private trading firm in Kuala Lumpur, Jan. 7, 2016. Malaysians are dealing a series of financial concerns linked to the government and falling prices for top exports.
AFP

Once an economic powerhouse in Southeast Asia, Malaysia has been hit with a series of financial setbacks under the leadership of Prime Minister Najib Razak which are not limited to debt-ridden state investment fund 1Malaysia Development Berhad (1MDB), economists claim.

Malaysia is struggling with a crisis of confidence as a result of global and domestic political issues that have contributed to an economic slowdown, Noor Ihsan Mohamad, an associate professor of the International Islamic University Malaysia’s Kulliyyah of Economics and Management Sciences, told BenarNews.

“One clear instance is the recently published data on the Malaysia Consumer Sentiment Index (CSI) for the final quarter of 2015,” he said in an interview.

The CSI dipped to a record low of 63.8, eclipsing the previous low, 70.2, from the third quarter of 2015. The CSI measures attitudes about the nation’s business climate, personal finance and spending.

Ihsan cautioned politicians to “serve the people and create less political drama” because normal Malaysians were feeling the pinch.

Global banking group HSBC forecasts that Malaysia’s economy will grow by only 3.6 percent in 2016, because of high levels of public and private debt, according to AsiaOne.

HSBC’s projection points to the national economy’s weakest growth in seven years. The forecast is more bearish than the official 4 to 5 percent of growth projected, and substantially lower than 2015’s estimated growth of 4.5 to 5 percent.

Ongoing 1MDB issue

Malaysians are hopeful that the Trans-Pacific Partnership trade deal, which its government and 11 other Pacific Rim nations signed in New Zealand on Thursday, will help pull their country out of the doldrums. The trade deal aims to topple barriers to the free flow of goods, services and investment capital among Pacific Rim nations.

Nonetheless, Malaysia is still under a cloud as it deals with fallout from revelations of a 2.08 billion ringgit (U.S. $681 million) deposit to the prime minister’s private bank accounts, via agencies related to 1MDB, in the run-up to Malaysia’s 2013 general election.

Attorney General Mohamed Apandi Ali last week announced that he would not pursue corruption-related charges linked to the deposit. Apandi said no criminal offense had been committed and that the money was a personal donation from the Saudi royal family to Najib.

Most of the money – 2.03 billion ringgit (U.S. $620 million) – was eventually returned to the donor, according to Apandi, but he did not say what the donation was intended for or what happened to the remaining $61 million.

The move does not end investigations into 1MDB. International authorities in the United States, Switzerland and Singapore are investigating 1MDB, whose advisory board is chaired by Najib.

Ringgit loses value

An economist working closely with the government said that while these scandals were political in nature, they have had economic repercussions, particularly through the depreciation of the ringgit.

“The political noises started in August and, similarly, the ringgit was hit hard since then,” said the economist, who declined to be named.

The ringgit’s depreciation is forcing students who had planned to study in the U.S. or Britain to explore other, less expensive options, the Malay Mail reported.

According to the economist, the current political atmosphere has eroded public confidence in Najib’s leadership. He said the government must become more transparent in government-related processes so as to help build confidence in the public sector.

“Even with massive structural change, we believe it would take at least five years for the effect to actually materialize. However, this is a much more difficult thing to achieve than becoming a high-income nation,” the economist told BenarNews.

The lack of confidence is also reflected in Malaysia’s dropping four places, to 54 out of 168 countries in Transparency International’s annual Corruption Perceptions Index (CPI). In 2014, Malaysia ranked 50th of 175 nations.

According to Barjoyai Bardai, a professor at Universiti Tun Abdul Razak’s Graduate School of Business, a culture of corruption has long been embedded in Malaysia’s public and private sectors and has become the only way of doing real business.

“To correct this, we need a revolution in public and private sector practices. It is not impossible, but not easy either. Hong Kong and Singapore have done it with flying colors and so can we. But we need real clean and determined leaders and government to initiate this revolution,” he told BenarNews in an email.

Falling oil prices aid Malaysia

Despite claims that last year’s sharp fall in oil prices hit Malaysia’s economy, Standard Chartered, a British banking and financial services firm, claims the nation actually imports more petroleum than it exports and the lower cost would actually benefit it, according to the Singapore Business Review.

On the other hand, Standard Chartered claims that falling prices for palm oil negatively affected Malaysia’s economy, because exports for the commodity fell more than 4 percent in the first 10 months of 2015 compared with the same period in 2014.

“Malaysia’s 2015 fiscal deficit was raised only slightly to 3.2 percent of gross domestic product from the initially budgeted 3.0 percent, despite the sharp oil-price decline. This was partly thanks to subsidy savings (fuel subsidies have been eliminated), and partly because dividends from the national oil company are determined by the government and are set based on the previous year’s oil prices,” Standard Chartered reported.

Nation needs leaders with integrity

Hafiz Rahman, who works in the oil and gas industry, said Malaysia desperately needed political stability and that could only exist through leaders with integrity, because “investors won’t invest in a corrupted country.”

“Leaders with [a] high level of integrity will be able to lead their people and create a conducive economic atmosphere that will eventually bring political stability with minimal crime rate,” he told BenarNews.

In order to bring this about, the government should do away with corrupt government policies and appoint ministers who are known for their integrity.

“The government must provide strong, transparent leadership, with accountability, to drive the message of zero tolerance for graft; political financing, meanwhile, should be regulated with a more practical mechanism, than the current,” Hafiz said.

Malaysia has been governed by the same coalition, Barisan Nasional, since gaining its independence from Britain in 1957.

Fahirul N. Ramli also contributed to the report.

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