COMMENT | Stronger than gold - rising ringgit portends economic boom

COMMENT | The ringgit has lately registered the most powerful quarter-to-quarter growth in the last 50 years, an enviable record that goes back to 1971, according to Bloomberg, and there is every sign that the currency is not gaining too fast too soon.

While the Malaysian economy still has structural and teething problems, such as the lack of 60,000 data scientists and software engineers required to transition it into a digital and green energy-based economy, up to 98 percent of it is composed of micro, small, and medium enterprises (MSMEs).

Granted that the latter is the backbone of the economy, it is not impossible for government-linked investment companies (GLICs) and government-linked companies (GLCs) to work with them.

MSMEs do not necessarily mean peddlers of cheap produce and street food. Some of them form the staple of Malaysian exports.

Yet, only up to 28 percent of the Malaysian gross domestic product (GDP) is affected by the strong ringgit.

To the degree that they are, these exporting companies can defray and reduce their costs by sourcing some of their materials from the likes of China, India, and Indonesia.

To-do list

But first and foremost, Prime Minister Anwar Ibrahim should understand that as our local note becomes stronger, we need to strengthen our relationship with China, India, and Indonesia to ensure our export sector remains strong.

Second, the ringgit is not gaining at too quick a speed, as some of the money that returns to Malaysia is due to the repatriation of the Malaysian GLICs and GLCs’ foreign investment back to a booming economy in Malaysia.

Anwar has explained to MPs that he did not force the GLICs and GLCs to reinvest in Malaysia based on their foreign profits abroad other than what they themselves have deemed appropriate.

Growing at a clip of six percent by the end of 2024, which is only 2.2 percent lower than India, Malaysia is returning to the status of an emerging economy. If one must, an Asian Tiger.

Thirdly, the ringgit is gaining because, within the last 18 months, Malaysia has put in place a Renewable Energy Plan.

Although Malaysia is responsible for only 0.8 percent of global greenhouse emissions, compared to 34 percent by China and 28 percent by the US, Anwar has decided to help Malaysia achieve a net zero emission by 2050.

At 0.8 percent of global greenhouse gas emissions, as long as Malaysia can ensure that the cost of the utilities to generate the National Transition in Energy Renewal plan is not affected by any bottlenecks such as the above, Malaysia is well poised to achieve its plan to reduce emissions.

Fourth, with a debt-to-GDP ratio of 44 percent and the government’s intention to pare down the country’s at least RM1.5 trillion debt further, there is nothing wrong with wanting a stronger ringgit.

A stronger ringgit reduces the cost outlay to repay the national debt. Ideally, to bring it down to less than 40 percent within the next two years. In contrast, Indonesia’s debt-to-GDP ratio is well above 66 percent.

Although the Indonesian rupiah is also doing well, not unlike the Thai baht, a stronger ringgit helps Malaysia to pare down its national debt, especially those denominated in a basket of US and euro currencies.

Fifth, the Federal Reserve Bank in the US, not unlike the one in Canada, has reached an inflation rate of 2.5 percent and 2.1 percent, respectively. The Feds are especially set to lower the interest rate, which in turn will lower the mortgage rate in the US.

As and when the two rates fall, they have a positive spillover effect on Malaysia too. Currency traders all across the world will be less interested in the yields of trading the US dollar, and the currency should stabilise at RM3.8 per dollar by early 2025.

One must also note that the ringgit typically strengthens after the announcement of the budget, notwithstanding the occasional retreat, as occurred on Oct 2 due to the war in Lebanon and increased geopolitical uncertainty worldwide.

Stronger than gold

Meanwhile, data from Bloomberg shows the ringgit has appreciated 14.35 percent against the US dollar over the last three months, beating gold, which rose by 14.2 percent, into second place. The data covered the period between June 27 and Sept 27.

The fact is, when the ringgit is strong, that’s when Anwar’s popularity will increase regionally and globally.

The inauguration of Indonesian President Prabowo Subianto on Oct 20, one of Anwar’s closest allies, will further consolidate the performance and status of both leaders to create a win-win effect across both sides of the Straits of Malacca.

All of the factors above have been taken in by the necessary markets or financial centres around the world.

The fact that Malaysia knows how to avoid a shouting match with China while also positioning itself to join Brics together with Thailand has also put us in a good light as one of the leading countries in the developing world - no longer a Banana Republic that was home to the 1MDB scandal.

PHAR KIM BENG is an expert committee member of the Centre of Regional Strategic Studies (Cross).

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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