PETALING JAYA: A weakening ringgit against the US dollar due to hawkish Federal Reserve interest rate increases makes it harder for Malaysia to repay its debt, especially in the greenback, and attract foreign investments, economists said.
Macroeconomics Associated LLC chief economist Gustavo Pessoa pointed out that this is a red flag.
“For sure it will lower income (as well) and make it difficult to pay debt. Unfortunately it is difficult and dangerous to intervene in the foreign exchange rate market because in the short term exchange rate reflects politics, but in the long term it reflects productivity.
“So, the only safe way to deal with it
is to increase the country’s productivity.
Any other forms to intervene in the short term will be deceitful,” Pessoa told
SunBiz.
Meanwhile, Economist Intelligence Unit chief economist Simon Baptist said a bigger issue is that high interest rates in the US makes it harder for Malaysia to attract foreign investments, which is critical for the country’s transformation.
“That’s why the government needs to be more active in making reforms to attract business and people to Malaysia.
“Malaysia’s situation (in terms of debt repayment) is not too worrying at the moment as high commodity prices are supporting foreign exchange reserves, and many of these are priced in US dollars on international markets,” said Baptist.
Professor Emeritus Dr Barjoyai Bardai stated that now is the perfect time for Malaysia to repay the loans in yen.
“Currently we have some loans in Japanese yen. Our ringgit has strengthened against the yen by more than 7% just within this year. This is a good time to repay the loans if we have the capacity,” he said.
As of 5pm Sept 15, the local currency had slid to 4.5350 against the greenback, breaching the 4.53 level that was deemed the lowest since the Asian Financial Crisis. Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz in July said that the federal government’s debt up as at June 2022 stands at RM1.045 trillion, or 63.8% of the country’s gross domestic product. Some RM43.1 billion (18.4%) of Putrajaya’s estimated total revenue was allocated for the federal government’s debt service charges for this year.
“By the end of June 2022, RM19.8 billion was spent to pay off the interest of the government’s outstanding debt,” stated Tengku Zafrul.
