Malaysia must avoid ‘boom-bust’ cycles to finally claim Asian Tiger status, central bank governor says

Malaysia is working toward having the “the right ingredients” to finally claim “Asian Tiger” status, but must avoid the traps of widening inequality seen elsewhere.

That’s according to Abdul Rasheed Ghaffour, the governor of the central bank of Malaysia, who believes the southeast Asian country must avoid a “boom-bust cycle that has happened before.”

In the boom years of the 1990s, Malaysia’s growing economic prowess gave the country hope that it would transform into an “Asian Tiger,” joining the informal club of Asia’s four economic powerhouses that saw spectacular growth; Hong Kong, Singapore, Taiwan and South Korea.

The country was long tipped to be number five. That did not materialize, largely thanks to the 1997 Asian financial crisis. But it may be a case of better late than never, thanks to better-than-expected economic growth this year.  

“We initially projected to grow by 4 to 5 percent,” Ghaffour told CNBC’s Karen Tso at the IMF annual meetings in Washington, D.C., this week. In the first three quarters of this year, Malaysia recorded 5.1% GDP growth, exceeding its projections, he said, with the central bank now expecting growth to be between 4.8% and 5.5% for the whole of 2024.

Ghaffour is both “aspirational” and “cautious” with the newfound confidence.  

“It’s more of sustainable, kind of, growth that we want, quality growth that we want. And also in terms of growth with less inequality. So these are the things we would like to have, so then you have the right ingredients to take us through to become the Asian tigers,” he told CNBC.

A glance at inequality rates across the established Asian Tigers sheds light on his concerns.

According to a study by Oxfam released last year, Hong Kong’s poorest make 57.7 times less than the richest. Over 1.36 million people, accounting for 20% of Hong Kong’s population, live in poverty. 

Figures published by Taiwan’s Directorate General of Budget, Accounting and Statistics bureau in April showed a four-fold rise in the difference in net wealth between the wealthiest and least wealthy 20% of households over a 30 year time period.

Meanwhile, South Korea has reportedly “relatively lower levels of income equality” compared with other East Asian countries thanks to national income growth more equally distributed in the 1980s. “Yet, income inequality has worsened over the last three decades,” reports the World Inequality Database.

Semiconductor success

Malaysia’s semiconductor sector is enjoying some success, centered in and around the state of Penang. European and U.S. companies are establishing new facilities or expanding existing ones, aiming to build resilient global supply chains for these essential components.

Tech titan Intel has made a $7 billion commitment to opening a new plant in Penang.

According to the World Economic Forum, the Malaysian hub attracted $12.8 billion in foreign direct investment last year, surpassing the total amount from the previous seven years combined.

Malaysia’s chip success story has seen it deeply embedded into the global supply chain for semiconductors, said the central bank governor, exporting 7% of semiconductor chips globally.

However, the global supply chain is dominated by Taiwan, which makes most of the advanced chips in circulation.

Ghaffour said Malaysia is moving into producing logic chips — more advanced chips often know as the brains of electronic devices.

He also sees new opportunities in electric vehicle production and artificial intelligence providing “high value jobs,” citing similar ambitions made by ASEAN neighbors Thailand and Indonesia.

U.S. election caution

Ghaffour believes Malaysia’s diversification of its economy can be a “shield” to absorb any shocks from the upcoming U.S. presidential election in November and a potential election victory for former President Donald Trump which could bring a shift in policy on tax, tariffs and immigration.

“We need to ensure that we are prepared. We need to ensure that we have all the buffers that we need to face this changing environment,” he warned, remaining cautious on backing either the Republican nominee or his Democratic challenger Kamala Harris.

For now, policy is merely “campaign rhetoric,” he told CNBC. “We’re watching this very closely”.