The governor of Bank Negara Malaysia (BNM), Tan Sri Nor Shamsiah Mohd Yunus claimed that Malaysia is unlikely to go into a financial recession this year. Does this still stand true in light of the US banking turmoil that led to the second and third-largest bank failures in all of US history? Will there be spillovers and will it have a domino effect on Malaysia? The timing could not have been better as we recently interviewed Firdaos Rosli, Bank Islam’s Chief Economist, right before the recent collapse of the Silicon Valley Bank and Signature Bank. Firdaos has over a decade of experience in the industry, especially during the major financial crisis that Malaysia faced.



A typical day in the life of the Chief Economist of Bank Islam is usually hectic, starting with Firdaos reading the current news alongside the latest microeconomics data. He mostly focuses on inflation in the US, which will subsequently fit into the interest rates, unemployment and oil prices policy responses of other parts of the world . Later in the day, he is usually occupied with responding to emails, queries from the media and having meetings and discussions with his staff.

Bank Islam is the only standalone Islamic Bank in Malaysia, thus offering a variety of Islamic products such as stock broking, bank assurance/insurance and unit trust. The three main differences between an Islamic bank and a conventional bank in Malaysia is the concept of riba (anything that is deemed as excessive), maysir (the acquisition of wealth by chance) and gharar (speculative trading).


A Dive into Financial Crises 

A “crisis” occurs when “things that are usually within our control go out of our control, and is usually defined by the relevant authorities,” Firdaos clarifies. For example, financial crises are commonly declared by banks and not governments. However, some situations may appear to be crises but are not actually considered as one, so long as things are within control. “For example, this happened last year when the whole world talked about global inflation. However,  in the case of Malaysia, it was not entirely a crisis because we were able to mitigate the impact through price controls, subsidies and et cetera,” explains Firdaos.

There are several types of financial crises – currency crises relating to the balance of payments, debt crises, and confidence crises. An example of a confidence crisis domestically was the share prices of MyEG, which went down twice following government announcements and wiping out almost two billion worth of its market value within a week. Firdaos explains that often these crises lead to domino effects. “For example, when Malaysia was confronted with the Asian financial crisis back in the late 90s, it didn’t even happen in Malaysia but it started from our neighbouring countries and spilled over to our banking sector. And then, because of the banking sector, the domino effect was felt throughout other sectors, even those unrelated to banking.”

“Crises usually happen when we are not able to anticipate changes, especially now when things change quite rapidly.” Firdaos notes that, in the past, the time period between one crisis to another was very forgiving, and allowed nations to regain their composure. However, in recent times, crises have been occurring more and more frequently. In the case of Malaysia, we faced the COVID-19 pandemic recently, and prior to that, we faced a drop in global oil prices, falling from 103 USD per barrel to 30 USD per barrel. Fortunately, the fall in global oil prices did not lead to a contraction in Malaysia’s GDP, primarily because GST served as a buffer.


Financial Crisis and Recession, National vs Global?

“A crisis will usually lead to a recession, but a recession is not necessarily caused by a financial crisis,” clarifies Firdaos. “A recession can stem from other parts or sectors that are not financial, but if there is a financial crisis it will surely lead to a recession.”

Several economies have suggested that 2023 will be a recessionary year, as global growth spirals downward, raising concerns. However, the world is incredibly interconnected in today’s age. Although the Western economies – most notably the US and the Eurozone – are going to experience a moderation in growth, China has reopened their economy. This will likely be the engine of growth for the world in 2023, and may even come to balance out the effects of the potential global recession.

Tax policies have also proven to be a saviour for our Malaysian economy. For example, implementing distributive justice, which refers to the distribution of wealth in an economy to be socially fair. GST and SST have also served as reliable buffers for the Malaysian economy. When asked about the key differences between GST and SST and how it affected our economy, Firdaos explained, “SST is a single-stage taxation, or a single-stage consumption tax, which means it is taxed at final consumption. Whereas the GST is multi-layered, so it is taxed at each and every level of value creation.”

“Secondly, SST is a positive list consumption tax. This means that only the goods that are listed in the act are considered taxable. However, it is the reverse for GST – goods that are in the list are not subject to GST, and everything else is subject to the GST rate. The latter would mean that if there are any new technologies or new types of transactions, they will also be subject to taxation.”

This amounts to a big difference in the final revenue gained from these taxes, both serving as useful buffers for the economy in times of recession and crises, depending on how severe the recession may be.


Common Signs and Prevention of a Crisis

Firdaos states that the most common telltale evidence of an upcoming recession is “For Closure” sign boards – outside shops, real estate, and office blocks. However, things have become far more sophisticated these days, as economic metrics have been tracked religiously over the past decade or so, unlike before. Reading the news and keeping up to date with recent global events will make signs of a recession obvious to any ordinary person.

As a developing economy, most, if not all of Malaysia’s past financial crises were externally induced.

Thus, Malaysian economists will often turn to external news, particularly from the US and the EU.These two countries are significantly correlated with our growth, affecting about 88 to 89 percent of it! As far as trade is concerned though, we are closer to China than any other country. Even the economic crisis caused by the COVID-19 pandemic was externally induced, and not by the virus itself but rather by the Malaysian government following other world governments, to impose lockdowns, thus putting the economy at a standstill.

As for what we can do to mitigate the effects of a financial crisis in our lives or in the total economy, there’s really not much that can be done. “Although we reign policy autonomy in fiscal and monetary policies, there are many things that are not within control,” Firdaos elaborates. “For example, there are three things that are not within our control. The first are the fiscal and monetary policies of other countries, most notably the big economies such as the US, the Eu and China. Secondly, global oil prices, and thirdly is general investor sentiment.” These factors can play a significant role in the effects of a recession in our economy and yet are mostly out of our control.


How should citizens prepare and protect themselves from the effects of a financial crisis?

One thing that you should note is that interest rates around the world are decreasing over time primarily due to the impact of economic crises. Governments tend to pursue counter-cyclical fiscal measures every time there is a crisis. This means that though their debt will increase, the imposition of monetary policy will reduce the debt burden through the reduction of interest rates. This allows governments to take on more debt, acting as a stimulus to put the economy back on track.

In Malaysia, interest rates were once double digits but have gone down over time from 3.5% prior to the pandemic, to 3.25% during the US-China trade war, and finally to a historic low at 1.75% during the pandemic. This was done to provide an accommodative environment for economies to thrive during the crisis.

Malaysians are more concerned about consumption now rather than investment, most notably after the Asian financial crisis. Interest rates have gone down as the government encourages citizens to increase consumption. Surprisingly, the government has not mentioned the unsustainability of this practice, as interest rates going down also means that returns on safe assets such as bonds, EPF, ASB and Tabung Haji will also go down.

It appears that consumption is now cheaper than it was prior to the pandemic. Not only that, but the value of assets has increased as well due to technological advancements. There is more technology involved in producing these goods which means that though prices have gone up, financing has become cheaper due to lower interest rates.

Now that the interest rate has gone down, consumption has risen while savings have dwindled. To put this into context, RM 145 billion worth of our old age savings through EPF were withdrawn during the pandemic as a form of fiscal injection.

The government’s lack of appetite to invest in infrastructure and improve our growth rates in the future means that the private sector including households like ours will also have very little appetite to invest. In the 90s, Malaysia had a plethora of mega projects such as KLIA, Putrajaya, the expansion of PLUS Highway and KLCC, providing many opportunities for private investment. However, now, announced mega projects like the East Coast Rail Link (ECRL) are postponed due to corruption which balloons the cost of the project over time.

Citizens should improve their financial literacy, which is what FLY is all about, in order to protect themselves. Firdous reveals that he usually assumes that interest rates would go up, to foster self-discipline in terms of managing his personal finance. His personal finance advice is that it is always much easier to upgrade your life or your standard of living rather than to downgrade.


Bank Islam’s efforts in combating an upcoming financial crisis

Firdous mentioned that since the Asian financial crisis, banks have been putting a lot of effort into ensuring that financial institutions in Malaysia have a good buffer against economic crises. All in all, financial institutions that are bound to Bank Negara rules will continue to abide by the central bank’s leadership. For example, over the pandemic, Bank Islam provided a moratorium, where customers could choose not to pay, or rather, suspend their debt servicing to the bank without hurting their credit score.

Following the end of the moratorium, Bank Negara pursued Targeted Repayment Assistance (TRA) to assist murals in distress. It is still being continued by some banks including Bank Islam today. So, say a borrower is still being faced with tight financial conditions, they could still come to the bank and request for some relief.

There are various financial levers put in place to ensure financial sustainability in both modification losses and provisions done by banks. During the pandemic, banks issued a moratorium and the TRA, meaning that, generally, profits for banks in that particular fiscal year would have to be affected. Therefore, banks set aside modification loss and some provisions for the future. However, as far as banking ratios are concerned, Bank Islam’s cross-impact financing or the TIF remains one of the industry’s lowest. Firdous claims that bank slumps are bearable especially since Bank Islam is very conservative when it comes to lending.


The severity and mitigation of the medium and long-term effects of the 1997 Asian Financial Crisis

Every crisis presents opportunities and threats for the future.

1. Difficult for our financial system to be a part of the global environment. 

During the 1997 Asian financial crisis, which was deemed one of the worst financial crises faced by Malaysia, the capital controls[1] put in place meant that we were able to ensure that our crisis responses were done autonomously without the influence of others, especially the multilateral banks. However, it would also mean that it would be notoriously difficult for our financial system to be part of the global environment.

2. Undervalued ringgit 

The Malaysian ringgit has been sliding since the age of the financial crisis. Back then, the ringgit was somewhere around RM 2.40 to a dollar. It fluctuated and on the 5th of November last year, it reached its highest ever recorded in history at RM4.75 to a US dollar.

a. Private Investments have not yet returned to pre-Asian financial crisis levels today.

There are no mega projects compared to in the 90s when there was a race for infrastructure projects.

b. The relationship between debt and growth after the global financial crisis.

Primarily, the concern was that Malaysia accumulated quite a bit of debt as a result of the Global Financial Crisis but growth rates were not interesting enough for investors. The previous government tried to control it through the introduction of GST, subsidy rationalisation and by targeting a balanced budget by 2020. Firdous mentioned that although growth rates did go up over the past decade, they still remain fairly flat at about 4-5%, when the government recommends that it should be at least 6% a year.

During the global financial crisis, the subsidy bills in that fiscal year were around RM 90 billion. We managed to cut the fat a bit over the years but it went up again during the pandemic. Firdous mentions that the average income in Malaysia has gone up to around RM 3,007 and that the income-to-GDP has gone up due to the introduction of minimum wage.


Long-term impacts on Malaysia’s labour market as far as Covid is concerned:

1. Our unemployment rate has yet to return to pre-pandemic levels

Firdous expresses that he is unsure whether the incomes have also gone back to pre-pandemic levels as the government has yet to announce it or conduct the household income survey.

2. The decline in foreign workers coming in

This is not only because they see more opportunities in their home countries but also due to the fact that we have tightened our labour laws which makes it harder for Malaysian companies to source for low-skill, low-wage workers.


Effectiveness of the measures taken by the Malaysian government in response to the 1997 Asian financial crisis

The Chief Economist believes that there are two schools of thoughts here. The first is that capital control was effective. The second is that if the Malaysian government were to resort to the IMF for assistance, we would still be able to crawl out of the crisis during the same period. The only difference between the two measures is that reforms in key ineffective industries and/or institutions were not taken. He claims that we tend to get misguided over what is happening around the world if we do everything on our own and the economy will effectively be derailed away from globalisation.

Putting the economy back on the globalisation track would require undoing many of these activities. Industries would have to increase efficiency, and economic activities would have to be more complex resulting in more enforcement.

After the global financial crisis, the government initiated a new economic model to reverse these damages. Unfortunately,  it did not receive a positive response from the public, as the reform space was left for some time. Before the crisis, reforms were executed without political hassle as political capital back then was stronger and done consecutively. The change from agro-based to manufacturing to services was done seamlessly prior to the crisis. However, after leaving the reform space, Malaysia has to catch up, especially with our neighbouring countries. For example, Malaysia was known as the regional automotive manufacturing hub in the 90s. However, after the crisis, Honda and Toyota turned to Thailand instead, to expand their manufacturing capacity. Now, many economies foresee Indonesia as the next manufacturing hub due to its potential in battery manufacturing, which may lead to a healthy EV industry. Manufacturers are now bypassing Malaysia for its neighbours.

“Whether or not we are better at addressing a crisis being away or being closer to the global economy depends on the government, as some would prefer to be away from the global economy to get things going while some feel that the reforms would have to be in line with the global economy. The former, however, would require the need to catch up eventually – Firdaos Rosli”.


Important lessons learnt from past economic crises Malaysia has faced

Firdous believes that an important lesson learnt from the two major financial crises we have faced would be identifying whether or not we are better at addressing a crisis being closer or further away from the world. Apart from that, he believes that we must understand that economic policies must go hand in hand with our political development. This is because, at the end of the day, public policy will be shaped by the political development of the nation itself, whether we like it or not.

“Following Malaysia’s 15th General Elections (GE15), we now have a multi-coalition government instead of having a single coalition government, which means that parties not only need to work among themselves, but with coalitional partners as well. However, whether or not this will stand the test of time is unknown”.

“A good Economist will know which one makes sense and which one doesn’t, but a great Economist will put many non-economic factors together to understand the world better. A good Economist will be able to unpack the economic content in the simplest of terms so that everybody understands what you’re saying. So, if you want to pursue economics, make sure you understand the technical bit of it and then rephrase it in a manner that even your dog would understand. – Firdaos Rosli”.



[1] Capital Controls: any measure taken by a government, central bank, or other regulatory body to limit the flow of foreign capital in and out of the domestic economy. These controls include taxes, tariffs, legislation, volume restrictions, and market-based forces.

Journalists: Li-Ann, Arianna

Editor: Maryam Chaudhary

Reviewers: Emeline Yong, Elina Yong


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