Rating group claims a weak ringgit reflects underlying, entrenched flaws in Malaysia’s economy
KUALA LUMPUR, July 3 — The ringgit’s continued slide reflects entrenched weaknesses in the local economy that requires political will to fix, a local rating group claimed today as it countered the official argument that suggested a weaker currency plays into Malaysia’s advantage.
In a statement issued today, the Malaysian Rating Corporation Berhad (Marc), a pro-free market agency, was critical of the official narrative that a weak ringgit benefits exporters.
And even if it did, Marc claimed long-term reliance on a weaker exchange to boost competitiveness would only hinder Malaysia’s ambition to “rise up the value chain”.
“A weaker exchange rate is only a temporary adjustment to prices to maintain competitiveness,” it said.
“Competitiveness, of course, has several facets, such as policy stability as well as infrastructure and tax rates, and needs to be distinguished from merely having cheap exports. If a country were to rely on a weaker exchange in the long term, it is then pursuing a race to the bottom,” the agency added.
“This contradicts not just the fundamental concept of raising a country up the value chain but relegates a country to de-development.”
The ringgit was the second-worst performer in Asia year-to-date after the Japanese yen as of last week of June, although the currency has been on an upward momentum.
The ringgit opened marginally higher against the US dollar today as the local note seemed to have been stabilised by Bank Negara Malaysia’s (BNM) intervention, according to a report by The Star which cited one analyst.
At 9am, the local unit rose to 4.6615/6650 versus the greenback compared to 4.6635/6705 at last Friday’s close.
Marc said perceptions of Malaysia’s economic standing and ringgit performance are related to the degree of international confidence in Malaysia.
“Besides the issue of weaker external balances, debt sustainability and public financial strength is weakening,” the agency argued.
Malaysia’s 2023 fiscal deficit is projected to be around 5 per cent of gross domestic product. Marc said the deficit would have “an adverse impact” on Malaysia’s debt servicing payments-to-revenue ratio, which has trended higher since 2012’s 9.4 per cent.
It breached the self-imposed threshold of 15 per cent during the height of the pandemic in 2020-2021, the ratings firm noted.
“This points to structural issues in which revenue was only sufficient to cover operating expenditure, encroaching on the use of debt to fund development expenditure,” it said.
Prime Minister Datuk Seri Anwar Ibrahim’s government has pledged to table the Fiscal Responsibility Act as part of efforts to reduce fiscal wastages and combat corruption around government procurements.
Despite tabling a record federal spending plan for this year, Anwar vowed to reduce the deficit.
“It’s hoped that the planned tabling from June 2023 to the year end is a precursor to a well-thought-through plan rather than an indication of coordination challenges,” Marc said.
