To achieve the status of an Asian Tiger, Malaysia must avoid 'boom-bust' cycles, according to the central bank governor.

• Abdul Rasheed Ghaffour, the governor of Malaysia's central bank, stated that his country is on the brink of becoming an Asian Tiger, but must be cautious about the dangers of increasing income disparity.
• The semiconductor industry is experiencing growth in Malaysia, along with a shift towards a more diversified economy.
• The U.S. election is approaching, and Malaysia and its neighbors should brace themselves for economic instability, as advised by Ghaffour.

Malaysia is striving to acquire the necessary elements to achieve "Asian Tiger" status, but must steer clear of the pitfalls of increasing disparity that have plagued other countries.

According to Abdul Rasheed Ghaffour, the governor of the central bank of Malaysia, the country must avoid a "boom-bust cycle that has happened before."

In the 1990s, Malaysia's economic growth provided hope that it would become an "Asian Tiger," like Hong Kong, Singapore, Taiwan, and South Korea, which experienced rapid economic growth.

Despite being long predicted to rank fifth, the country did not achieve this due to the 1997 Asian financial crisis. However, with better-than-expected economic growth this year, it may still be a case of better late than never.

According to Ghaffour, who spoke to CNBC's Karen Tso at the IMF annual meetings in Washington, D.C., Malaysia initially projected to grow by 4 to 5 percent. However, in the first three quarters of this year, Malaysia recorded 5.1% GDP growth, which exceeded its projections. As a result, the central bank now expects growth to be between 4.8% and 5.5% for the whole of 2024.

Ghaffour is both "cautious" and "aspirational" with the newfound confidence.

We want sustainable, kind of, growth with less inequality. This is what we would like to achieve, so we can become the Asian tigers.

Examining inequality rates among the Asian Tigers reveals his worries.

Last year, Oxfam released a study showing that Hong Kong's poorest earn 57.7 times less than the wealthiest. Approximately 1.36 million people, or 20% of Hong Kong's population, live in poverty.

The net wealth gap between the wealthiest and least wealthy 20% of households in Taiwan has quadrupled over a 30-year period, according to figures published by the Directorate General of Budget, Accounting and Statistics bureau in April.

Despite having "relatively lower levels of income equality" in the 1980s due to national income growth more equally distributed, income inequality has worsened over the last three decades, reports the World Inequality Database.

Semiconductor success

The semiconductor industry in Malaysia is thriving, primarily in the state of Penang. Foreign companies, including those from Europe and the U.S., are investing in new facilities or expanding existing ones to strengthen their global supply chains for critical components.

A new plant in Penang will receive a $7 billion investment from a tech giant.

Last year, the Malaysian hub received $12.8 billion in foreign direct investment, which exceeded the total amount from the previous seven years combined, as stated by the World Economic Forum.

The central bank governor stated that Malaysia's chip success story has made it deeply embedded in the global supply chain for semiconductors, with the country exporting 7% of semiconductor chips globally.

Most of the advanced chips in circulation are produced by Taiwan, which dominates the global supply chain.

Ghaffour stated that Malaysia is transitioning towards manufacturing logic chips, which are commonly referred to as the "brains" of electronic devices.

He also recognizes new prospects in electric vehicle manufacturing and AI offering "high-value employment," as seen in the aspirations of ASEAN neighbors Thailand and Indonesia.

U.S. election caution

According to Ghaffour, Malaysia's diversification of its economy can serve as a "buffer" to withstand any economic impacts resulting from the upcoming U.S. presidential election in November and a possible victory of former President Donald Trump, which may lead to changes in policy on tax, tariffs, and immigration.

To face the changing environment, we must ensure that we have all the necessary buffers.

He informed CNBC that the policy is currently just "campaign rhetoric," and they are closely monitoring the situation.