Analysts have warned that Malaysia’s drive to build a global financial hub clashes with the need to put the Asian country’s public finances on a stronger footing, the Financial Times reports.

The country’s project, called the Tun Razak Exchange, is named after the prime minister’s father. Prime minister Najib Razak has recently promised to introduce a consumption tax and trim subsidies to reduce government debt, standing as a higher proportion of gross domestic product, the report noted.

The fact that concerns have been raised about such a financial centre indicates that some of the optimism about the Asia-Pacific region, a key driver of the global economy in recent years, is fading, if only for a period. Emerging market economies have had a difficult period since the US Federal Reserve signalled an end, or “tapering”, of its quantitative easing policy.

The FT article said some of the public debt is contingent liabilities of government-linked entities, including 1MDB, the government fund backing the new Kuala Lumpur financial centre.

It quoted Ong Kian Ming, a political analyst and an opposition member of parliament, as estimating the projected deficit for 30 of such entities, including 1MDB, at RM93 billion ($29 billion), or 9.4 per cent of GDP.

TRX will consist of up to four office towers, a luxury hotel, as many as five residential buildings and a shopping mall, the report said. Haji Azmar Talib, chief executive of 1MDB’s property unit, was quoted as saying that after a ground-breaking for TRX last year, the project was making progress towards being a new financial district “to complement Asia’s established finance centres in Hong Kong and Singapore”.

The report added that there are also concerns that TRX will exacerbate a glut in office space in Kuala Lumpur.

Meanwhile, on another issue relating to Malaysia, Labuan the jurisdiction in eastern Malaysia, has recently reiterated its commitment to tax transparency and called itself a "midshore" location. To view more on this issue, click here.