There are some strange things going on in Malaysia these days and one has to wonder what the underlying reasons are.
First of all, the government has been busy over the past weeks to brush aside all bleak economic forecasts for the country despite its outlook was downgraded by Fitch Ratings. Forbes Magazine wrote of ‘Malaysia’s bubble’ and the renowned international publication criticised Malaysia’s reckless credit booms and extravagant construction projects. “Not true,” officials say,“Malaysia’s economy is not going to tumble and there is no bubble at all.”
In fact, Malaysia has been running on a deficit since 1999, with the country’s debt to gross domestic product (GDP) ratio standing at 53.1 per cent, which is already dangerously close to the government’s set ceiling of 55 per cent.
Malaysia’s household debt has hit an all-time high of 83 per cent of GDP, the highest in Southeast Asia. This debt has been growing at about 12 per cent annually since 2008, boosted by banks offering low lending rates.
Apart from that, Malaysia is also feeding an inflated civil service sector, whose US$19 billion wage bill is the single largest budget item, accounting for a third of total government spending.
Malaysia’s civil service sector employs 1.4 million people or 10 per cent of the labour force, the highest rate in entire Southeast Asia, and this year another 80,000 public servants will be added in the sector.
Malaysia’s massive Islamic finance sector also has its downsides. Sales of multi-billion sukuk and other bonds to foreign investors have led to a serious exposure to global capital and currency markets and the effects could be seen earlier this year when the ringgit tumbled as a result of this exposure.
Prime Minister Datuk Seri Najib Tun Razak has plenty to do to rescue the country from a possible credit rating downgrade when he presents his government’s annual budget on October 25. Reducing subsidies for food and fuel and imposing a new sales tax could risk upsetting his strong voter base of ethnic Malays even though there will be no cuts for the civil service which is dominated by Malay clerks.
In this critical period, Najib for some reason during the Eid holidays came out with declaration that Malaysia will “remain steadfast in strengthening the position of Islam”, aiming at creating a “high-income, progressive and developed Muslim country”, which is arguable if a Malaysian court did not at the same time come out with a rather irrational decision that non-Muslims are not allowed to use the word ‘Allah’ for God any more in Malaysia – which has been an affront to the one-million Christian minority in Malaysia especially in Sarawak and Sabah and somehow contradicted Najib’s vision of a ‘progressive’ Muslim country.
The verdict even prompted a newspaper editorial in The National newspaper of the UAE, a country not known as being too progressive in Muslim issues, stating that the Malaysian decision was ‘surprising’ and ‘wrong’ as the use of ‘Allah’ was not exclusive for Muslims. In fact, the whole discussion was highly expendable.
Other recent news that hammered Malaysia’s international reputation was the announcement of Norway’s sovereign wealth fund, the largest in the world, to blacklist two Malaysian firms from investment, a timber and a palm oil company, for repeatedly violating environmental standards.
The Norwegian fund’s council of ethics found ‘unacceptable risk’ of large-scale forest destruction, non-compliance with environmental laws and poor forest management practices at the two companies which are big names in their businesses.
Indeed, there is much to repair in Malaysia.
Our columnist Dr Arno Maierbrugger is editor-in-chief of www.investvine.com, a news portal focusing on Southeast Asian economic topics as well as trade and investment relations between Asean and the GCC. Investvine.com updates its clients on current business news and financial market data and publishes interviews with prominent business people as well as government officials. The related website www.insideinvestor.com is currently being developed as an online platform connecting investors with investment opportunities.