KUALA LUMPUR, Sept 3 ― Malaysia’s reliance of credit and oil prices has made its economy the most vulnerable in the region, a Financial Times (FT) column said today as analysts compare its situation to the 1997 Asian financial crisis.

Analysts have also cast doubt on Malaysia’s goal to achieve a high-income status by 2020, pointing out a need for Malaysia to bolster its institutions’ independence and integrity amid the 1Malaysia Development Bhd scandal.

“Comparisons with 18 years ago are not completely wide of the mark,” FT quoted a note by consultants Capital Economics.

“Malaysia is in a tight spot … It is sitting on the wrong side of the commodity downturn and is very reliant on credit,” said Fred Neumann, chief Asia economist at multinational bank HSBC.

As oil and gas, in addition to palm oil, form up to 30 per cent of Malaysia’s exports, FT said it is still adversely affected by commodity prices instead of benefiting from it like most Asian economies which are net importers.

Relying on credit to sustain growth, HSBC said Malaysia’s total debt is proportionally higher than in China and has also risen faster, with household debt alone is at 80 per cent of the gross domestic product (GDP).

Its reserves has also fallen from 3.7 times short-term external debt two years ago to just 1.0 times, and by mid-August its total was US$94.5 billion (RM402.6 billion), down from US$106.4 billion back at the end of May, said FT.

Despite using the reserves to prevent a slide of the ringgit, FT said the efforts still failed causing ringgit to drop to a 17-year low of 4.17 to the dollar.

“They’ve spent US$12 billion of foreign exchange reserves in six weeks and achieved nothing … That’s clearly unsustainable,” one alarmed banker who stayed anonymous told FT.

Speaking at the World Capital Markets Symposium today, embattled Prime Minister Datuk Seri Najib Razak said the Malaysian economy is in a stronger position than it was during the 1997 Asian Financial Crisis to bear any “incoming storms”.

But amid all this, Capital Economics’ analyst Krystal Tan said the perception of a “deep-seated institutional problems” in Malaysia will still persist even if the Southeast Asian economy avoid a crisis.

Tan suggested that Malaysia’s economy will not grow much beyond 4 per cent in the next decade, a prediction FT said will keep Malaysia in the middle-income trap for a much longer period.