'Unpacking Malaysia’s Regional Strategies in 2025'

It is my honour to be here today. The theme, ‘Unpacking Malaysia’s Regional Strategies in 2025’, is actually very fitting as we step into our chairmanship of ASEAN. This has always been seen as an important and transformative year for us with many opportunities to explore and advance. However, recent developments have elevated the need to think harder on the outlook for the region and Malaysia’s position, and how we can navigate these uncertainties.

Let me start with how we thought the global and regional growth prospects would be. The recent IMF World Economic Outlook forecasted that global growth for 2025 will strengthen to 3.3%. A small increase compared to 2024, but an increase, nonetheless. This was to be driven by a sustained growth momentum in the US and advanced economies. Importantly for us, with the exception of a small decline in China’s growth, Asia was expected to sustain its growth momentum, with expected stronger outturns in particular Japan and major ASEAN countries.^[1]

Challenges in the global investment landscape

Despite these encouraging development, it is important to acknowledge some of the realities of the uncertain global landscape. The year ahead could be challenging on many fronts; policy, economic and geopolitical. One ongoing uncertainty has been due to the continued resiliency of the US economy, with inflation slowing down more gradually than expected. This underlies the continued uncertainty over the timing and extent of the US Federal Reserve’s monetary policy easing. The central bank may need to keep its interest rates high for an extended period, as a result, the gap between US interest rates and those in other markets is likely to remain. This continues to provide an attractive environment for US dollar assets that offer higher returns compared to investments in lower-yielding markets.

The return of Mr. Trump to the US presidency also brings about a renewed level of policy uncertainties, which could have far-reaching effects on global markets. While initial reactions following the earlier campaign rhetoric have been a risk-off for emerging markets and a strong dollar environment, the actual impact of President Trump’s policies on global growth could be more nuanced. His commitment to deregulation and tax cuts could stimulate the US economy, with positive spillover effects on global markets. His directives to deregulate and expand oil drilling could lower gasoline prices, potentially stimulating growth while reducing inflationary pressures. However, tariffs and trade restrictions, particularly targeting key trading partners, would introduce significant uncertainties. Retaliatory tariffs could further strain international trade and contribute to volatility in global markets. Trade dynamics could also change with other countries benefitting from supply chain rerouting, countries such as Vietnam and Malaysia. Even then, all this is a very fluid situation with what we have witnessed in the past couple of days. Maybe it’s still too early to say. But we can expect the overall impact of Trump’s policies on global growth could be mixed, as both positive and negative effects play out.

Another significant change has been the major shift in the US’ strategy on their green agenda and renewable energy. In addition to speeding up and deregulating drilling to boost oil production in the US, the US is withdrawing from the Paris Climate Agreement. This will impact international collaboration on climate goals and affect the momentum for the global shift toward greener economies in tackling climate change. It is quite notable that several large US banks and global asset managers have also withdrawn from networks of net-zero initiative. Whether these moves reflect a real shift in strategy by financial sectors remain to be seen, but these developments have raised concerns about the pace and future of green agenda.

Uncertainties surrounding China’s economic growth outlook continue to be a source of market volatility. And while there are better prospects for the geopolitical tensions in Europe and the Middle East to recede, there are emerging geopolitical risks stemming from the US’ interest over Greenland and the Panama Canal. The convergence of these factors underscores the need for resilience and adaptability for economies navigating an increasingly volatile environment in 2025.

Ringgit resilience and strength of domestic markets

Last year, our own economy demonstrated considerable resilience, underscoring our ability to weather global uncertainties. Growth, which is projected to be 5.1% for 2024, came in on the higher side of our expectations with a stronger outturn in investments, consumption and the external sector. Exports continued to benefit from strong external demand and positive spillovers from the global tech upcycle. Investment activities remained strong with Malaysia achieving a record level of approved investment in 2023. This positive momentum is set to continue, with approved investments rising by 10.7% year-on-year for the first nine months of 2024.

The ringgit also had a strong 2024, staging a remarkable recovery in the second half of the year to emerge as the best performing currency in the region. The ringgit even defied the broad rally in the US Dollar Index (DXY) to become one of only two regional currencies to appreciate against the US dollar in 2024. Year-to-date, amid the recent volatility, the ringgit strengthened marginally as of this morning.

The first key driver for the ringgit's performance was the US Federal Reserve’s commencement of its rate-cutting cycle which was pivotal in supporting the ringgit. This is expected to continue in 2025, as the US Fed and all other G10 central banks, except for Japan, are still in a rate-cutting cycle.

Secondly, the joint efforts by BNM and the Government in encouraging the repatriation and conversion of income by GLICs and GLCs were vital in stabilising the market and providing underpinning support to market flows. Adding to this are the numerous engagements with corporates, importers and exporters to bring and manage flows to the market and the rolling out of the Qualified Resident Investor Programme. Along with our interventions, these initiatives have effectively reduced excessive volatility and restored investor and public confidence in our markets. Looking ahead, we will continue these initiatives and at the same time, remain vigilant and proactive in preventing excessive fluctuations and ensure the orderly functioning of our markets.

Thirdly, our economy demonstrated a robust performance in 2024, with inflation levels remaining under control. The structural reforms pursued by the Government have laid a solid foundation for ensuring sustainable growth in the future. In this context, the remarkable performance of the ringgit affirmed that the economy was on track, and it has now strengthened market confidence in the ringgit's resilience and long-term strength.

The resilience of the ringgit was further supported by vibrant trading activities in the foreign exchange markets. In 2024, the daily foreign exchange (FX) trading volume averaged USD 17.6 billion, recording a double-digit percentage increase compared to the previous year. Similarly, our money and bond markets recorded higher average daily trading volume of RM10.3 billion and RM4.7 billion in 2024, both higher than the previous year. These developments underscore the further deepening of our market liquidity and the growing capacity for our financial markets to efficiently facilitate and absorb large transactions.

Opportunities for 2025

Notwithstanding the various uncertainties in 2025, Malaysia stands to offer numerous opportunities, driven by our strategic focus on economic and fiscal reforms, leadership in Islamic finance and our ASEAN Chairmanship.

Economic and fiscal reforms

On the economic front, the Malaysian economy is projected to grow by 4.5% to 5.5% this year.^[2] There are a range of catalytic projects based on various masterplans^[3] that are designed to create new industries and drive long-term economic transformation, with the intention to future-proof the nation’s growth. There has been a wave of data centre investments by global leading tech companies. With these, Malaysia is strengthening its position as a leading hub for the digital economy in ASEAN, and unlocking new opportunities for innovation, job creation and ancillary businesses within the ecosystem.

Tourism has made a strong rebound. At the aggregate level, tourism activity has returned to its pre-pandemic levels, seen in the full recovery of tourist receipts and the value added by tourism-related sectors. Looking ahead, we expect further improvements. We see higher international demand, coupled with expanded flight capacity, continuing to fuel this momentum. Our ASEAN 2025 Chairmanship and the highly anticipated Visit Malaysia 2026 will also serve as key catalysts for our tourism sector.

Complementing these prospects is the Government’s commitment to fiscal sustainability. The Public Finance and Fiscal Responsibility Act (FRA) establishes the Government’s commitment to gradually reduce its fiscal deficit and borrowings, targeting a medium-term fiscal deficit of 3% of GDP and a debt ratio below 60% of GDP. So far, the Government has achieved their annual targets in order to meet these goals. Additionally, the shift from broad-based subsidies to targeted subsidies is resulting in substantial savings that can be redirected to other national priorities.

Our financial sector remains well-capitalised and is strategically positioned to support growth and investments. In 2024, business loans growth of 5.1% was supportive of growth and Malaysia recorded significant increase in both equity fund raising and corporate bond issuance. Bursa Malaysia recorded its highest number of IPO listings in the last 19 years. With a total of 55 IPOs launched and RM7.4 billion raised through these offerings, we ranked first among ASEAN exchanges and surpassed London’s IPO market in terms of the number of IPOs and total value raised in 2024. Additionally, corporate bond issuance surged to RM124 billion, surpassing the previous year’s RM118 billion, with sukuk continuing to hold the majority share of the outstanding debt capital market. These achievements highlight Malaysia’s ability to facilitate large-scale financing and growing confidence by both issuers and investors to engage in the Malaysian market.

Islamic finance and sustainability

In Islamic finance, Malaysia continues to be a global leader and international hub. With a strong regulatory framework, robust financial infrastructure and a deep pool of talents, Malaysia has created a conducive environment for Islamic financial markets and institutions to flourish. In the global sukuk market, Malaysia remains a dominant player, commanding 48% of the market share of global sukuk outstanding. This leadership extends to the financial services sector, where Islamic banking has achieved significant penetration, accounting for 46% share of the total financing. Our takaful industry has also shown robust growth, nearly tripling in contribution size over the past decade to command almost a quarter of the total market share.

While we have made significant strides, there is still potential to solidify our position.

Firstly, Malaysian Government Investment Issues (MGII) have long been recognised globally, being included in major bond indices such as the Markit iBoxx Asian Local Bond Index, Bloomberg Aggregate Bond Index, and JPMorgan Government Bond Index-EM for as early as 2012. One further step in this is through the potential inclusion of MGII in the FTSE World Government Bond Index, which will be a further recognition for our MGII. We are looking forward to these developments and a favourable outcome for the inclusion of MGII in the FTSE World Government Bond Index.

The market for Sustainable and Responsible Investment (SRI) sukuk has also grown encouragingly, reaching RM11.9 billion in 2024. Quite some progress since the first issuance in 2017. However, when we look at the bigger picture, SRI sukuk still accounts for less than 5% of the total sukuk market, which highlights a significant untapped potential. As Malaysia is actively pushing for sustainable projects, there is a significant opportunity for us to harness the potential of SRI sukuk as a key financing tool.

Finally, our growing takaful market positions us as a leading takaful and retakaful market in the region and globally. With strong domestic and global players, Malaysia stands ready to facilitate cross-border businesses and serve as a global hub. Our observations are that many opportunities are emerging in the region and elsewhere, and there is great interest on what Malaysia can offer. By fostering collaboration and innovation, Malaysia can further strengthen the takaful ecosystem. These are opportunities to look into to maximise the potential of this growing sector.

ASEAN financial integration

Malaysia’s ASEAN chairmanship this year provides us with opportunities to further advance economic and financial integration. In line with Malaysia’s ASEAN Chairmanship theme of ‘Inclusivity and Sustainability’, financial sector initiatives will support ASEAN’s post-2025 vision to be a future-ready economy, particularly in the areas of sustainability and payment connectivity. In the area of sustainability, we plan to further support the region’s efforts in developing the tools and capacity for a just and orderly transition, catalysing access to sustainable finance, supporting SMEs’ green transition, and mobilising finance for green and climate projects. Building on the ongoing momentum in payment connectivity in the region, we will also focus on initiatives to expand the use of payment linkages and facilitate participation in instant payment connectivity across ASEAN. We look forward to the financial industry and business community contributing and participating in our initiatives. In the area of sustainability for example, we look forward to exploring together innovative green solutions including Islamic finance products and tools. We also look forward to the participation of financial institutions and the financial industry in the various conversations and events that will be held to advance the ASEAN agendas.

One particular agenda that we have strong interest in is the increasing use of local currencies. In this, Malaysia can position itself as a hub for regional currency trading and liquidity management. The foundation for this has been laid out with the earlier establishments of the Local Currency Settlement Frameworks (LCSF) with the Bank of Thailand and Bank Indonesia. The frameworks provide regional interbank connectivity and flexibility in foreign exchange rules for the participating banks to offer competitive services for businesses to settle their cross-border transactions in local currencies, allowing businesses to better manage their foreign exchange risks. This initiative helps promote the resilience of regional businesses. Since the introduction of the frameworks, local currency settlement has increased considerably for trades with both Thailand and Indonesia. Beyond this, Malaysia can also leverage its robust banking infrastructure and expansive network of Appointed Overseas Offices (AOO) to facilitate seamless cross-border transactions.

Conclusion

In conclusion, while the global landscape remains challenging in 2025, I am confident that Malaysia will do well. Our resilience and ability to navigate through uncertainties have been proven. As we move forward, we are poised to maintain the strong momentum into 2025 and capitalise on the many opportunities that lie ahead.

Thank you.

^[1] Including Indonesia, Malaysia, Philippines, Singapore and Thailand.
^[2] As outlined in Belanjawan 2025.
^[3] New Industrial Master Plan (NIMP), National Energy Transition Roadmap (NETR), and National Semiconductor Strategy (NSS).