Forex Update: Malaysian worries – Economic crisis brewing up in South-east Asia

The Malaysian development

It is a universally acknowledged fact that Malaysia that used to be a serene countryside a few years back has emerged as one of the magnificent countries in south-east Asia with respect to technological advancements and urbanization. The astonishing improvements that Malaysia has made lie largely in the sectors of infrastructural development. Recently the government has introduced a new mass transit system for Kuala Lumpur and Iskandar, both important cities in the heart of the nation.  Malaysia’s stock markets are at record highs as Kuala Lumpur has turned into a hot bet for bankers and industrialists. The forex traders should be aware about the recent updates and developments so that they don’t face any hindrances when they decide to take a step forward.

The Undercurrent

Malaysia cityMalaysian economy has mainly been dependant on domestic demands and the export of oil to other nations. However, the global economic crisis has started to take its toll on the Malaysian economy also. Its export of oil has fallen in the last few months and it is clear that the government cannot depend on them to meet huge fiscal deficits. Malaysia, as matter of fact has the largest fiscal deficit in Asia after India and Pakistan. At 52.6 percent the fiscal deficit has started to loom large ominously over the Malaysian economy. Though it does not face an immediate threat this fiscal can pose a serious problem for the nation and the region.

The Oil Sector

Malaysia’s main revenue is provided by the extensive reserve of oil and natural gas. However the decrease in demand of oil and natural gas abroad and the increasing production cost has impacted negatively on Malaysian economy. Much of the subsidies and the funding of government projects were met through the revenues earned by exporting oil and natural gas. But under current scenario this is becoming harder than ever. Petronas, the national oil company of Malaysia, is also against providing subsidies as they harbor excessive consumption. However, with the government at a critical political position, it is unclear to what extent the government reduces subsidies to balance the budget deficit. All this has led to the traders in forex to be a little more skeptical than usual.

Malaysia is considered to be one of the world’s strongest economies. But as the economic crisis in Europe shows no sign of fading away the tension has started to mount on relatively safe economies like that of Malaysia. Though Malaysia is not in immediate danger the worry stays for the entire south-east Asia. The government may want to take strict steps but there are political limitations as well. Now it is to see whether the government takes strict measures to reduce the fiscal deficit or restrains itself in the face of upcoming elections.

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