Improvements are apparent, but we must still brace ourselves for a turbulent year ahead.
WHEN the ringgit’s value continues to slip against the skyrocketing cost of living, not many Malaysians are interested in listening to complicated economic reasons for the depreciation.
The ordinary Malaysian worker who is struggling to put food on the table and pay his bills, only wants to know what the federal government is going to do about it.
For Opposition politicians, this offers an opportunity to score brownie points and blame the government for its purported failure to competently handle the country’s finances.
But that’s their job. The present government leaders did likewise when they were on the other side of the fence, too.
In fact, when the unity government came to power and the ringgit strengthened, they were quick to claim credit.
At the recent Conference of Rulers’ meeting, the Rulers also wanted to know why the ringgit is sliding and what the government had to say about it.
Malaysia, like many other countries, is facing the same predicament as our currency continues to free fall.
Other currencies have taken a beating but ours, unfortunately, has been dealt the severest blows in the region. That’s certainly bad for local politics.
But external factors, like the continuously high US interest rates to fend off its inflation and rising geopolitical uncertainties, have been big contributors to our weak ringgit, too.
The US doesn’t care how its actions impact the rest of the world. It only needs to stop its out-of-control inflation.
It’s the highest interest rates in 22 years as the US fights to stabilise prices in its economy.
But there are other reasons as well. For example, Ukraine, known as the “breadbasket of the world,” has been a top exporter of grains including wheat, barley, corn, soybeans and oilseeds, but the troubles there have affected the price of food worldwide.
A year on, and the war with Russia continues to rage.
Before the conflict, an estimated 70% of Ukraine was farmland, but the situation has since changed dramatically.
Global headwinds: The ringgit’s depreciation means food will be more expensive. By 2021, Malaysia had almost doubled its food import bill to RM78bil. — ZAZALI MUSA/The Star
Now, there’s another story unfolding in the Middle East as the world hopes the war between Israel and Palestine will be confined to just the Gaza Strip and won’t draw Lebanon and Syria into it, or worse, Iran, which backs Hamas and Hezbollah.
The ringgit’s depreciation means food will be more expensive. By 2021, Malaysia had almost doubled its food import bill to RM78bil.
According to reports, we bought more than 1.8 million tonnes or around 35% of rice, over 680,000 tonnes of fruits and 1.8 million tonnes of vegetables.
Juxtaposed with this, our exports have shrunk from 120% of the Gross Domestic Product (GDP) in 2000 to about 70% today, as the world still struggles to navigate past the two-year Covid-19 pandemic.
China, for example, was Malaysia’s number one trading partner for the last 40 years but today, the republic is still sluggish and struggling to get back on its feet economically.
Its recovery has been much slower than expected. Obviously, that has had a big impact on Malaysia as we rely on China a lot.
But according to World Bank lead economist for Malaysia, Apurva Sanghi, the value of the ringgit shouldn’t be viewed as the only metric of the country’s economic strength.
“In fact, the Malaysian economy has many strong points, such as a low inflation rate of 2%, low unemployment, booming semiconductor exports, (some) move towards subsidy targeting and focused push to revive investments,” he wrote on X, formerly Twitter.
Other strong points include a deep domestic investor base, Malaysia’s position as global leader in Islamic finance, strong banking sector, low foreign denominated debt and an economy well insulated from disasters compared to the Philippines and Indonesia.
He said Malaysia had a reasonably sized domestic market and ample land, which gives Malaysia “a leg up against Singapore and can improve itself to be a net contributor to global food security.”
Sanghi noted that Malaysia has vast forest reserves and biodiversity, which if managed well, can vault our country to be a global leader.
And all this is now underpinned by a stable government, which seemingly has a clear, four-year runway.
He said the ringgit’s woes had to be viewed in the context of external and domestic factors, short and long-term issues and monetary and government policies, and “specifically how government policies can amplify existing strengths and unique fundamentals that Malaysia has.”
So, while external factors have affected our ringgit, domestic policies matter, too, which the government – and not Bank Negara Malaysia – must fix.
Growth of foreign direct investment inward stock into Malaysia has slowed down and all this lowers long run demand for the ringgit and affects its value.
To be fair to Prime Minister Datuk Seri Anwar Ibrahim, he has been shuttling overseas, at a punishing pace, to bring more investment to Malaysia.
Many of the deals announced, of course, need to be translated into real implementation and not mere mind-boggling numbers for public announcement.
Sanghi disagreed with suggestions to peg the ringgit, saying the banking system was strong, well-capitalised, had much liquidity and faced reduced external vulnerabilities.
He questioned who would be responsible for setting the “right” rate, adding that Bank Negara would have to surrender its monetary policy.
Then there is the question – should Malaysia also impose higher interest rates?
Most experts say it would mean a higher cost of borrowing. So both businesses and consumers would cut back on investments and spending.
For example, higher interest rate payment for auto loans, mortgages would go up, causing consumers to spend less.
We don’t need to be economic experts to know that improving governance, boosting trade and increasing FDIs would be one way for Malaysia to improve its ringgit.
The fourth quarter beckons, which is the home stretch for the year end. Let’s not expect much to change overnight.
But we need to take stock of what’s looming in 2024 and be prepared for a bumpy ride with uncertainties aplenty.
