Malaysia’s Finance Issue

Malaysia now faces several economic issues. The country wishes to implement development projects such as Iskander Malaysia, the high speed rail track with Singapore and the growth of its Islamic Finance industry, while at the same time attempting to solve its debt problems. This balancing act will be a difficult task for Najib Razak, the country’s prime minister.

In an interview by Bloomberg News, Prime Minister Najib was quoted as saying “We’re very closely monitoring how we manage our macro position as well as our fiscal and debt to make sure that we will not be downgraded”. This was said due to Malaysia’s mounting concerns about its rising debt following a Fitch Ratings decision to cut the country’s credit outlook in July of 2013. Malaysia has run up its annual budget deficit every year since 1998.

In September 2013, Moody’s Investor Service indicated that Malaysia’s deficit measured as a percentage of overall GDP might exceed Najib’s target of 4.0%. The agency warned the Malaysian government that if its “fiscal house” is not put in order, any new targets will become “increasingly out of reach” unless further measures are taken. Moody’s currently has a debt rating of Malaysia’s government bonds at A3 with a stable outlook.

The Malaysian Ringgit currency, along with many currencies throughout Asia such as the Thai Baht and Indian Rupee, declined sharply in late 2013 along with the U.S. Federal Reserve’s change in monetary policy and decision to reduce quantitative easing (QE). During this time, emerging economies such as Malaysia suffered some of the worst capital outflows in recent history. This resulted in significant declines across the board for many regional currencies, including the Ringgit.