These developments have continued to sustain our external balance with the current account of the balance of payments likely to continue to record large surpluses. Going forward, in the next 12 to 18 months, several external and domestic developments need to be taken into account in the assessment of our economic outlook. First, the slowdown experienced in a number of the major economies is likely to extend into 2009. This more prolonged period of slowdown is likely to have spill over effects on other economies including emerging economies. Global financial markets are also expected to remain volatile as the financial stress experienced by financial institutions in these economies continue to have an impact on credit conditions, the housing market and their overall economy. These developments have resulted in a number of institutions scaling back their global operations. The disruptions in the credit markets have already exerted some restraint in economic  BIS Review 71/2008  1  activity. While the adjustments are still taking place, there remains uncertainty about the full magnitude of the losses and its consequent impact on financial stability and thus on their overall economy. Despite these developments, indications are that growth remains resilient here in the Asian region, benefiting from the strengthened domestic demand and the increased trade activity within the region and with the non-traditional markets.
These mechanisms will become increasingly important as regional integration continues to deepen and as more Malaysian financial institutions venture overseas. The progress that has been achieved in the financial sector has surpassed the initial expectations outlined in the financial sector masterplan. The foundation of a vibrant, sound, stable and resilient financial sector accords the opportunity of advancing the sector to a new level where new opportunities with new formulas and strategies for success can be achieved. The financial sector has been key in supporting the transformation of the Malaysian economy, to increase its significance and to promote a more diversified economic structure. This has been achieved by the increased financing extended via the banking system and capital market. In particular, outstanding loans and private debt securities expanded by an average of 7.8% for the period 2001-2007. Malaysia is also ranked third in terms of access to credit amongst 175 countries surveyed by the World Bank in the Doing Business Report 2007. In an environment of rising incomes and expanding domestic demand, the further  BIS Review 71/2008  5  modernization of retail banking will be important going forward. With increasing financial literacy and growing consumer sophistication, product pioneering and cross-selling, the trend towards electronic financial transactions will gain significance. Increasingly, loans to the corporate sector will become less dominant with an expanding and efficient functioning capital market. In particular, the bond market presents opportunities for increased corporate advisory and debt and equity underwriting business. Private debt securities now represent 45.5% of GDP.