Expert Sees Firm Economy Despite Volatile Ringgit

Despite unstable Ringgit, Malaysia’s economy remains firm and access to credit widely available
Despite unstable Ringgit, Malaysia’s economy remains firm and access to credit widely available -- MH Graphics

Maybank Investment Bank chief economist Suhaimi Ilias said Malaysia’s trade or current account surplus has been sustained for decades despite having budget deficits

KUALA LUMPUR — Malaysia still attracts foreign direct investment (FDI) inflows, its economic fundamentals and long-term prospects remain intact while access to credit remains widely available to finance economic activities, despite a volatile ringgit, said an economist.

Maybank Investment Bank chief economist Suhaimi Ilias said the country’s trade or current account surplus had been sustained for decades despite having budget deficits. 

Additionally, he said the budget deficit itself is in the process of consolidation, declining from a high of over 6.0 per cent of gross domestic product (GDP) during the pandemic years (2020-2021) to 5.6 per cent of GDP in 2022. 

The budget deficit, then targeted to be 5.0 per cent of GDP this year, has thus made progress to a sustainable level of around 3.0 per cent to 3.5 per cent of GDP, targeted by 2025.

“Furthermore, the budget deficit is virtually fully financed by domestic debt rather than external debt, reflecting the high level of internal financial resources, thanks to the high savings rate — another important economic fundamentals,” he told Bernama when asked about the current ringgit weakness.

It was reported that the ringgit declined 5.8 per cent in the first half of 2023, leading the losses among emerging Asian currencies, while equities in Malaysia and Thailand were the biggest losers in a mixed market.

Malaysia also continues to attract FDIs as indicated by the robust FDI approvals since 2021, which saw a record high of RM209 billion, and remain robust at RM163 billion in 2022, well over the average of RM58 billion per annum during the 2010-2019 period. 

For the first quarter of 2023 (1Q 2023), approved FDIs were up 52.5 per cent year-on-year to RM37 billion compared with RM28 billion in 1Q 2022.

“This reflects the confidence in the country’s fundamentals and long-term prospects, on top of the incentives given to pull in high-quality, high value-added, high impact FDIs, as per the recent announcements of investments in Malaysia by Tesla and Amazon, as well as the earlier long-term investment plan by Intel,” said Suhaimi. 

Ultimately, these fundamentals are reflected in Malaysia’s sovereign credit ratings, which are in the high investment grade category, with a stable outlook.

Bank Liquidity Still High

Bank Muamalat Malaysia Bhd chief economist and social finance head Mohd Afzanizam Abdul Rashid said, while the ringgit continues to be volatile, access to credit remains widely available as banks are highly liquid, well-capitalised and have robust risk management. 

“So, the intermediation of funds can happen seamlessly to finance economic activities despite the volatile ringgit. In that sense, the country deserves better concerning the level of ringgit,” he said. 

He added, “The issues to be focused on right now are how do we ensure the value of the ringgit is increased on a long-term basis and more sustainably?”

He opined that this would require economic reforms, the ones that would promote the role of the private sector as the main engine of growth. 

“Certainly, resource allocation has to be relooked at again to gain competitiveness. Therefore, spending on education, healthcare and infrastructure deserves greater attention as these are the key areas that can ensure Malaysia will be competitive. 

“If Malaysia is competitive, foreign funds will come in and this will create demand for the ringgit, which can then drive its value better,” he said.

Capital Market Caters for Investors’ Needs, Demand for Bonds Healthy  

“The Malaysian capital market has a diversified foreign investor base. It has breadth and depth to cater to investors need to diversify,” said Suhaimi.

In an environment of rising or high-interest rates, while it is generally negative for equities, bonds are attractive from a yield perspective, he said.

“Consequently, there is a total net foreign buying of Malaysian equities and bonds of +RM13 billion, we actually have net portfolio capital inflows year-to-date,” explained Suhaimi. 

For the first five months of this year (5M 2023), foreign investors recorded net purchases amounting to RM15.9 billion against net purchases of RM911 million in the same period last year.

This was led by higher inflows for Malaysian Government Securities and Government Investment Issues (GII) totalling RM11.9 billion (5M 2022: RM316 million) and RM5.4 billion (5M 2022: -RM253 million) respectively. 

“In that sense, it’s not all too bad for the ringgit as demand from foreign funds for Malaysia’s bond market is still healthy,” said Mohd Afzanizam. — Bernama

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