Economic Resilience and National Power: Strategic Challenges for Malaysia's Defence Capability

MALAYSIA'S economy is growing however its defence capability is not keeping pace. This is not a future concern, but it is already constraining operational readiness and narrowing strategic options.

The longer this gap persists, the more it will compound, turning short-term fiscal constraints into long-term capability limitations.

Despite recording over 5 per cent growth in recent years, structural vulnerabilities continue to limit Malaysia’s ability to translate economic strength into sustained military capability.

At the macro level, the picture appears stable. Growth has been driven by domestic demand and services. But beneath this lies a more persistent challenge. A narrow revenue base, high public debt and enduring subsidy burdens continue to restrict fiscal flexibility.

In a global environment where trade, finance and supply chains are used as instruments of strategic pressure, these vulnerabilities carry direct security implications. For Malaysia, exposure to external shocks is structural, not incidental. The consequence is clear. Economic constraints do not remain confined to the financial domain. They spill directly into defence.

When fiscal space tightens, priority shifts towards immediate operational expenditure. Long-term force development is delayed. Procurement timelines extend.

Over time, this reduces the availability of force and creates capability gaps. The issue is no longer how much is allocated, but what that allocation can actually sustain.

Defence spending remains at around 1.2 per cent of the Gross Domestic Product (GDP), below the long-term target of 1.5 per cent. But this obscures a deeper problem.

In conditions of slower growth or currency depreciation, the real value of defence spending declines, affecting capability acquisition even when nominal budgets remain unchanged.

Currency volatility compounds this constraint. Most advanced systems are procured in foreign currencies. A depreciation of the ringgit in the range of 10 to 15 per cent erodes purchasing power.

In operational terms, this means fewer platforms, delayed upgrades and reduced technological edge. What is often underestimated is time.

Defence capability is not easily restored once degraded. Procurement cycles are long, integration is complex and training pipelines take years. A disrupted funding cycle can significantly set capability development back. Recovery time, therefore, becomes a decisive factor in national defence.

At its core, defence risk is shaped by three factors: the likelihood of economic disruption, the impact on military capability, and the time required to recover lost capability. This provides a simple way to understand how economic pressure translates into military limitations.

In Malaysia’s case, all three are being stretched. Even short-term economic pressure can translate into long-term constraints on operational readiness.

These effects are already visible. The delayed Multi-Role Combat Aircraft (MRCA) programme, initiated in the early 2010s to replace ageing MiG-29 aircraft, illustrates how fiscal constraints translate into operational gaps.

The programme was deferred repeatedly and ultimately suspended due to funding pressures. The Royal Malaysian Air Force had to reduce the use of its fleet to preserve its lifespan, thereby reducing the number of available combat assets. The result was a clear and persistent gap in air defence capability.

The Littoral Combat Ship (LCS) programme, launched in 2013 to modernise the Royal Malaysian Navy and develop the domestic defence industry, presents a more severe example. It has faced significant delays and cost escalation. Despite substantial expenditure, no vessel has been operational to date. Costs increased significantly and delivery timelines were extended by years.

These cases highlight a systemic issue. Economic constraints alone do not define defence risk.

Governance weaknesses and industrial limitations amplify it. Fiscal pressure delays procurement. Weak oversight compounds inefficiency. Limited domestic industrial capacity extends recovery time.

Taken together, these dynamics point to a deeper structural misalignment. Economic capacity, governance effectiveness and defence ambition are not fully synchronised. The result is a gradual erosion of operational readiness and deterrence credibility.

This is not simply a defence funding issue. It is a national power alignment challenge. Addressing it requires integrating economic policy and national security at the centre of decision-making.

The starting point is national-level alignment. Economic decisions must be assessed not only for fiscal outcomes, but for their impact on defence capability, readiness and recovery. Without this integration, policy adjustments in one domain will continue to create unintended constraints in another.

Fiscal sustainability must be treated as a strategic requirement. High debt levels and subsidy burdens limit the state’s ability to sustain long-term force development and respond to crises.

Strengthening fiscal resilience through structural reform is essential to maintaining operational capability. Malaysia must also strengthen its position in an increasingly competitive geoeconomic environment.

Diversifying trade partnerships and reducing dependence on single supply chains will reduce exposure to external shocks. A calibrated approach of strategic non-alignment, engaging multiple partners while maintaining flexibility, provides an important hedge.

The defence industrial base requires recalibration. Heavy dependence on external suppliers extends recovery timelines and increases vulnerability during disruption. Rather than pursuing broad manufacturing ambitions, priority should be given to Maintenance, Repair and Overhaul capabilities, which sustain existing platforms and shorten recovery time.

Equally critical is governance. The LCS programme demonstrates that financial allocation alone does not guarantee capability outcomes. Strong oversight and accountability are necessary to ensure that resources translate into operational readiness.

Finally, economic risk must be embedded into defence planning. Future force development must account for fiscal shocks, currency volatility and supply chain disruption. This shifts planning from capability-driven to resilience-based.

At a broader level, Malaysia’s KESBAN (Keselamatan dan Pembangunan) approach was introduced to address the communist insurgency by integrating security operations with economic and social development.

By combining military efforts with governance, infrastructure and community engagement, it proved effective in stabilising affected areas and addressing the root causes of conflict. Its success lay in recognising that security and development are mutually reinforcing.

Today’s challenges extend beyond internal threats to include economic vulnerability, technological dependence and external strategic pressure. This requires KESBAN to evolve.

At the end, the challenge is not a lack of strategy, but alignment and execution. Economic strength alone does not guarantee military capability. Without resilience, it cannot be sustained. And without sustained capability, strategic autonomy becomes constrained.

Malaysia’s future national power will depend on how effectively economic policy, governance and defence planning are aligned at the highest level. The opportunity to close this gap exists now. The longer it remains unaddressed, the more it will define the limits of Malaysia’s defence posture and strategic freedom of action.

First Admiral Khairul Ayzan Taib is an officer in the Royal Malaysian Navy and currently attending the National Resilience College at the National Centre for Defence Studies (PUSPAHANAS) Putrajaya. The views expressed in this article are the author's own and do not necessarily reflect those of Sinar Daily.