KUALA LUMPUR, Sept 7 — Malaysia is among emerging markets vulnerable to a drop-off in readily available cash that is set to follow the reduction in the US Federal Reserve stimulus programme, according to The Economist.

In a gauge of 26 developing nations’ exposure to the expected “tapering” of the US central bank’s US$85 billion (RM280 billion) monthly bonds buying, the London business weekly noted that Malaysia’s rapid credit expansion meant the country faced moderate risk to its economy once the cash infusions dry up.

“Malaysia and the Philippines, victims of the Asian crisis of the late 1990s, are in better shape now. Both run current-account surpluses and have built up a much larger reserve buffer relative to short-run external obligations,” it wrote in its latest report yesterday.

“Yet credit growth has also been zesty.”

Explaining that rapid credit growth often signals overstretched firms and overvalued asset prices, it also said a more open financial system may boost growth in the long run, but it also makes it easy for capital to flood out fast.

In its benchmark, the weekly measured the 26 nations on four criteria: trade surplus, short-term debt, credit growth, and openness of the local financial markets.

In the list topped by Turkey and propped up by Russia, Malaysia narrowly missed making it to the “green” segment of five countries least likely to be affected by the Fed’s move, sharing joint-19th with neighbours Vietnam and the Philippines.

Indonesia came in as 10th most vulnerable, while Thailand was 17th.

By The Economist’s measure, Malaysia did well maintaining a healthy trade surplus of over 5 per cent of gross domestic product and holding relatively low short-term external debt. In terms of financial market openness, the country came in 15th on the table.

But the circa-2 per cent annual credit growth Malaysia was registering was enough to peg it as exposed to the looming concern.

“The risk of an abrupt end to capital inflows is now a worry for much of the emerging world,” the weekly said.

Last week, another British business paper noted that credit-driven expansion has made emerging markets susceptible to exiting funds once the US Fed discontinues its stimulus.

“One concern is that much Asian growth since 2008 has been bought on credit,” the newspaper said then.

“The danger of a bubble could be exacerbated in some economies by the fact that, until recently, currencies were exceptionally strong. That was the result of big inflows of money from the US that are now reversing.”

Malaysia has run a deficit budget since the 1997 Asian Financial Crisis and has in the process amassed a national debt of 53 per cent of its gross domestic product (GDP) — just under the legal ceiling of 55 per cent.

Households have also followed suit in borrowing and now suffers from one of the highest debt levels in the region, at over 80 per cent of GDP.