Malaysia at risk in event of global financial crash, says report

Malaysia’s economy is vulnerable to external shocks, the IMF says, because of its high debts and reliance on commodities. – The Malaysian Insider file pic, October 10, 2015.

Malaysia is one of several emerging economies at risk in the event of a global financial crash because of its high debts and unstable economic situation, the International Monetary Fund (IMF) said.

In a report by The Guardian, the fund highlighted corporations and financial institutions which relied on massive debt financing to maintain growth, adding that Malaysia was one example of countries allowing their their largest corporations to borrow heavily.

Other emerging economies included Brazil, Turkey, India and Argentina.

IMF financial counsellor Jose Vinals was reported as saying that the threat of instability and recession shadowing such countries could knock 3% off global gross domestic product (GDP).

“A collective effort to deliver a policy upgrade is needed urgently to face up to rising challenges in an uncertain world, to ensure financial stability and better growth prospects. Three per cent of global output is at stake,” he was quoted as saying.

This year, the ringgit has fallen nearly 20% against the dollar and the nation’s foreign reserves dropped by about the same percentage, to below US$100 billion (RM413 billion).

“It’s almost like a perfect storm for Malaysia,” Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar said in a report by Reuters.

A widening political scandal and tumbling currency have steadily taken their toll on investor sentiment towards Malaysia, unnerving its neighbours despite the central bank’s efforts to contain the damage.

Bursa Malaysia has also been wiped out since July, primarily by the escalating political fallout from allegations of graft and mismanagement swirling around indebted state fund 1Malaysia Development Bhd (1MDB).

The scandal has amplified concerns that the country is emerging as the weakest link in a region struggling with falling commodity prices, feeble global demand and impending interest rate rises in the United States.

- TMI