World Bank ticks Malaysia’s high level of household and public-sector debt

World Bank ticks Malaysia’s high level of household and public-sector debt

December 17, 2017 0 By WFTV

In a report on Malaysia’s economic situation, the World Bank ticked the following as a downside risk to its growth, that is the high level of household and public-sector debts.

The bank said that on the domestic front, downside risks to growth relate mainly to these two elements, which, despite a recent decline, the high level of household debt in proportion to the country’s gross domestic product (GDP) continues to pose a risk to the maintenance of macroeconomic and nancial stability.

Kuala Lumpur Twin Towers

It said that the risks are posed in the current context of persistent property market imbalances.

This could also have an impact on private consumption if prices increase, particularly as domestic nancial conditions are likely to tighten as a result of the Central Bank, the Bank Negara Malaysia’s monetary policy normalization measures.

In terms of public sector debt, while the level of Federal Government debt has declined over the recent years, contingent federal liabilities remains relatively high, presenting a potential source of medium-term scal risks.

Lastly, political uncertainties related to Malaysia’s upcoming general election, which is scheduled to be held by August 2018, may lead to some near-term financial market volatility.

External Risks

Malaysia‘s economy continues to face risks related to uncertainty in the external environment too, said the World Bank.

While the local pro-regime portals and newspapers refused to publish the segments on the risks the country is facing, here they are to add to your reading list:

In particular, the growing shift towards protectionism could have a dampening effect on global trade and investment ows, with disproportionate adverse spillovers on Malaysia, given its high level of integration with the global economy and nancial markets.

Within the developing east asia pacific (EAP), heightened geopolitical risks, mainly related to an increase in tensions in the Korean peninsula, could have severe economic implications for regional economies if these tensions escalate.

The World Bank also said other significant downside risks include a disorderly adjustment to global financial market conditions, weaker-than-anticipated growth by Malaysia‘s major trading partners, including China, and/or renewed decline in global commodity prices.

It also added weaker export demand if cyclical factors diminish.

Conversely, a stronger-than- expected recovery in the advanced and emerging market economies could lead to continued strong demand for Malaysia’s exports.

NOTE: Current trends in Europe and the USA suggests there will be continued downfall of import from these jurisdictions, but the growth of the Chinese market will act as a counter balance for the Malaysian export sector.