Hefty immigration, ethnic tensions and low levels of education conspire to stop the country from spreading its wings.
Almost two decades have past but the shock of the Asian financial crisis of 1997–98 is still fresh in people’s minds. And now, eight years after the last world recession, with slowing Chinese growth and especially the sharp decline in the value of a few regional currencies, the ghost of a repeat performance is haunting South East Asia. And Malaysia, the richest country in the area after Singapore, is topping the risk list.
The main danger signs came from the national currency, the ringgit. In 2015, it lost more ground against the dollar than any other Asian currency, devaluing by almost 20%. In September, the ringgit reached its lowest exchange rate since 1998 (4.47 against the dollar). The sustainability of the rapid growth witnessed over the past decade has been undermined by the heavy debt accumulated by the government and families. Less tax revenue and a depreciated currency make it much harder to repay debts, especially if the economy is slowing: potentially, a perfect storm.
One of the problems the Kuala Lumpur government is having to face is the drastic drop in oil prices. Malaysia is South East Asia’s largest exporter of crude oil. Over the last 18 months, the price of Brent crude oil has dropped from 127 to just 30 dollars (from €117 to €27), a disaster for the government’s tax revenues. In 2016, only 16% of government revenue is expected from oil sales, compared to 30% last year. The drop in palm oil prices has also taken its toll as the country is one of the largest producers of palm oil in the world.