The Ringgit, Inflation and Private Investment

The Minister of Finance (“MoF”) in The Edge Malaysia (2 May 2022) made a case in his article (somewhat similarly entitled) on the fine balancing act he has to perform during this Covid pandemic. Most MoFs are trapeze artistes or clowns. The new Sri Lankan MoF will attest to that!

There are several good points by the MoF. Supply chain, subsidies, inflation, interest rate, sovereign debt and exchange rate were all discussed. On the latter, he holds the view that for every 10 sen depreciation of the ringgit, GDP improves by 0.05%, exports are up by RM30.5 billion and current account surplus grows by RM800m. And GLCs with overseas investments have translation gain of up to RM7 billion. Does he not realise that this argument taken to its full measure must mean our ringgit should depreciate to say RM8 to the U.S. dollar then we will have everything in “hunky-dory” surplus and excellent outcomes? What crap! Just look at Turkey and where inflation is, 70%! Or, does he prefer Zimbabwe? Without going to the extreme, competitive depreciation will nullify any initial gains.

Source: https://dollarsandsense.my

The Hon. MoF goes on to say that “rather than focusing on a specific ringgit policy, the priority should be to implement structural reforms that will strengthen our economic potential and prospects to make Malaysia a more appealing investment destination”. Pray tell me how and what will you do? Are you going to do the following?

• NEP is discarded, including 30% (or 51%) Bumiputera equity requirement;
• Allocate fair budgetary sums for Bumi and Nons, or better still discard the division and just focus on all Malaysians according to their needs;
• Develop meritocracy  from education to employment;
• Re-calibrate  GLCs, universities, civil service to have Nons at all levels;
• Dialogue with private sector on their concerns. Malaysia’s private investment growth slowed markedly to 1.5% per annum in 2016-2021 from 12.1% per annum in 2011-2015. Private investment to gross domestic product (GDP) ratio also has fallen in recent years, from 17% in 2018 to 15% in 2021. In 2020, Covid-19 pandemic had caused a sharp decline of 11.9% in private investment before it turned around to increase moderately by 2.6% in 2021.

A host of obstacles are holding back private investment growth: weak global and domestic economic prospects; high operating, regulatory and compliance costs; distorted incentives and policies; the shortage of manpower; lack of financing for small and medium enterprises (SMEs); low profitability and return on investment as well as slowing foreign investment inflows. (All the above were cited by Lee Heng Guie, Starbiz, 5 May 2022);

• Improve FDI inflows? Net FDI inflows into Malaysia averaged US$8.3bil (RM36.13bil) in 2015-2020, which were significantly lower compared to US$82.5bil (RM359bil) in Singapore, US$17.4bil (RM75.75bil) in Indonesia, US$14.3bil (RM62.26bil) in Vietnam, while it is moderately higher than US$7bil (RM30.47bil) in the Philippines;
• Bureaucratic red-tape including APs for favoured people;
• Reduce corruption with Special Court and Public Prosecutors for corrupt practices;
• Place Malaysians with high integrity in institutions and banks; and
• Review the One-Stop Centre

Otherwise, we will be behind Singapore, Indonesia, Vietnam and the Philippines. But for now ahead of Laos and Myanmar. So, what do you say, MoF? Are you ready and “gung-ho” to start the structural reforms?

References

My say: Ringgit, inflation and the economy: A fine balancing act, Tengku Zafrul, The Edge Malaysia, 2 May 2022

Insight-voices of business: crying out for change, Lee Heng Guie, The Star, 5 May 2022