Bigger risks to growth in Malaysia than 1MDB scandal

The controversy surrounding the state investment company, 1Malaysia Development Bhd (1MDB), has intensified in recent days after Prime Minister Najib Razak, who has been accused of taking money from the fund, on Tuesday sacked his deputy prime minister, Muhyiddin Yassin. Mr Muhyiddin had previously broken ranks with his boss by calling on Mr Najib to explain his involvement in the scandal. 1MDB’s financial woes are unlikely to have a big direct impact on the economy. Consumers, at least, appear far more concerned about the effects of the recent introduction of the general sales tax on their spending power than any fall-out from 1MDB. Indeed, we think the bigger threats to Malaysia’s economy lie elsewhere, in the form of the slump in the currency, which has highlighted the country’s rapid build-up of US dollar debt, and the decline in commodity prices, which has caused a collapse in export revenues.