Last Tuesday, ringgit fell to 4.7965 against the dollar, its lowest since January 1998 during the Asian financial crisis.

While interest rates gap between United States and Malaysia is one of the major factors contributing to capitals being retained in the US dollars (USD).

However, why other currencies weren’t affected as bad as the Malaysian ringgit (MYR)?

Supply & Demand of the Currency

Like many other things, the currency complies to the supply & demand rules as well. When a currency is in demand, it gets stronger.

When a country has the products of others’ interests, trading increases and hence currency demand increases.

Even though most trades are done in other major currencies like USD, EUR, JPY or CNY, earnings of these trades would normally be still converted and flown back into domestic currencies.

Our Trades

In order for a country to be able to trade, we need strong and sustainable manufacturing sector to produce goods to be traded.

Referring to our Manufacturing Value Added (MVA) data, it took a sharp descend from 2004 to 2019, dropping from 30% to 21% GDP.

In the contrary, outstanding loans by banking institutions for the broad property sectors increased from 29.1% to 66% between year 1997 and 2022. Capitals have been heavily directed into “less productive sectors” as claimed by Bank Negara Malaysia in a statement issued in March 1997.

As of year 2021, outstanding loans to broad property sector is close to 9 times of those to the manufacturing sector.

In other words, as a developing country, we have been miraculously made to produce less and less trade products during those years with capitals being drawn away from the SMEs and manufacturing sector.

As a result, Malaysia’s economy is now heavily relying on consumer spending, which makes our economic model to be rather fragile. When our local manufacturing sector and SMEs are underfunded, we are unable to produce enough even for domestic consumption. As a result, it is necessary for us to import even essential items and its prices are highly susceptible to impacts of weak home currency.

Singapore vs Malaysia

Interestingly, Singapore, with only 5.9 million population, has a slightly higher MVA than Malaysia’s, with 33.5 million population.

According to latest MVA data by World Bank, Singapore’s MVA was USD 95.69 billion, while Malaysia’s MVA was USD 95.21 billion in year 2022.

In other words, Singapore’s MVA per capita is 5.7 times higher than Malaysia’s, which justifies why is the ringgit much more fragile as compared to the Singapore dollar.


Malaysia’s Economic Reform

The High Growth High Value (HGHV) initiatives emphasised by the Madani Government is the key economic reform agenda, desperately needed by the country. Malaysia needs not only to produce goods, but also high values goods that can be the key drivers for our economy.

On the other hand, youths in the country also have our roles to play. We have to envision ourselves to be in these HGHV sectors. Similarly to our capitals, our youths will also have to be directed into these productive sectors.

The country needs us to do greater things.


Ketua Biro Profesional Angkatan Muda Keadilan
Member of Expert Committee of the Centre of Regional Strategic Studies (CROSS)

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