Malaysia has buffers to weather capital outflows

New Straits Times

26-06-2025

KUALA LUMPUR: Malaysia has adequate buffers to weather volatility, including capital outflows, triggered by global interest rate hikes, said International Centre for Education for Islamic Finance (INCEIF) University Professor of Practice Tan Sri Abdul Wahid Omar.
Abdul Wahid, who is also a former Bursa Malaysia chairman, noted that the country has sufficient international reserves to cover a good number of months of retained imports and short-term debt obligations.
"We also have many investments abroad. I think it is not just about foreign investments here (in Malaysia) but also about our domestic investors investing abroad as well.
"That provides the flexibility to meet the challenges," he told Bernama on the sidelines of the Islamic Finance Future Leaders Bootcamp 2025, here today.
Abdul Wahid also highlighted that while equity markets experienced both inflows and outflows in recent months, such movements are cyclical.
"When it comes to the financial market movements, initially, it will happen from time to time. But everything is relative. We have seen significant outflows in the equities market, and we had a positive inflow in May. But the situation reversed in June. Everything is relative.
"There will come a time when some of this money will come back to Malaysia. As long as we focus on the fundamentals, there will be that fluctuation. But in the longer term, money will flow back to an economy that is growing," he said.
Commenting on Malaysia's economic prospects, Abdul Wahid said that the shift away from commodity dependence over the years has strengthened the country's economic fundamentals and positioned it to better absorb external shocks.
"The diversified structure of our economy has been improving over the years. The economy is mainly driven by the services and manufacturing sectors today. This (diversified structure) is not something that has occurred overnight.
"Once we have that diversified structure of the economy and are committed to managing government funds, including reducing the fiscal deficit, we are going to make the economy more resilient," he said.
Abdul Wahid noted that Malaysia's economy grew by 5.1 per cent last year, and without current external pressures, it would have been on track to achieve a growth rate between 4.5 to 5.0 per cent in 2025.
"However, given what's happening, we can expect a lower growth towards the bottom of 4.0 per cent to 5.0 per cent range. But a 4.0 per cent growth projected by consensus is still credible, given the challenges that we have globally today," he added.