Talk to any investor about Malaysia, and it will not be long before 1MDB comes up. The scandal surrounding the state fund has damaged the reputation of Prime Minister Najib Razak.
It was also part of the reason why Najib, who is also the country’s finance minister, placed dead last in FinanceAsia's Finance Minister of the Year awards last year. That verdict caused something of a stir on social media in Malaysia and even sparked a furious official rebuttal from the Ministry of Finance.
But the furore around the 1MDB scandal has lessened, and the concern this year is more to do with Malaysia’s economy. The country’s economic growth fell to 4.2% last year, down from 5% in 2015.
The government appears to be doing the best it can. Policy decisions made before 2016 — including the introduction of a goods and services tax in April 2015, and the removal of fuel subsidies in late 2014 — have been effective in shielding the country from global volatility. Najib has also kept to his promise to trim spending. The budget deficit now stands at 3% of GDP, down from a high of 6% in 2009.
But the economy faces significant hurdles. Consumption growth is slowly down significantly; HSBC predicts it will fall from 5.6% in 2016 to 3.7% this year. Unemployment is rising. Household debt of around 90% of GDP is the highest in Asia.
Malaysian politicians know they need to address these problems. But the lack of a separate finance minister can only hurt these efforts. Najib effectively has to split his time between managing the economy and playing politics, including fending off criticism from the 1MDB scandal.
Being finance minister is a full-time job. It is time for Najib to relinquish some of his power.
We will be unveiling this year's rankings day by day. Next: a minister battling a budget blowout.
