Risk Assessment in Finance: Malaysia’s Economic Outlook Faces Uncertainty Amid Global Turbulence
Overview
Malaysia’s financial landscape is fraught with uncertainties as the country navigates a complex web of global risks. Despite its resilient economy and robust exports, the country’s corporate payment behavior is affected by a somewhat shaky political and economic outlook.
Economic Outlook
According to the latest report by Coface, Malaysia’s growth prospects are expected to strengthen in 2022, driven by sustained external demand and pent-up domestic demand following the vaccination campaign. However, rising commodity prices and the ongoing conflict in Ukraine pose risks to production and exports. The country’s fiscal deficit is expected to remain high to support the recovery and long-term reforms, with public debt manageable but still high.
Political Landscape
The political landscape remains uncertain, with the country awaiting new elections due to the health situation. The current government lacks a clear parliamentary majority, which may impact its ability to push through reforms. Maritime territorial disputes with China persist, adding to Malaysia’s sovereignty concerns.
Business Climate
Malaysia’s business climate rating stands at A3, reflecting a good environment despite occasional difficulties in debt collection and institutional framework shortcomings. Corporate default probability is still acceptable on average. The country’s strengths include:
- Diversified exports
- Large domestic demand
- Dynamic services sector
- High R&D investment
- Access to foreign direct investments
- Exchange rate flexibility
- High per capita income
However, Malaysia faces several challenges, including:
- Budget income highly dependent on oil and gas revenues
- Low fiscal revenues
- High household debt levels
- Erosion of price competitiveness due to increasing labor costs
- Persistent regional disparities
- Ethnic and religious disputes
- Political uncertainties
Conclusion
While Malaysia’s economy shows resilience, the country must navigate a complex landscape of global risks, including rising commodity prices, the ongoing conflict in Ukraine, and maritime territorial disputes with China. A careful risk assessment is essential for investors and businesses operating in the country to make informed decisions about investments and operations.