With multiple agencies downgrading Malaysia’s 2023 GDP outlook, the ringgit continuing to slide and the cost of living still on the rise, immediate attention by the government is required.
Currently, the ringgit is at 4.68 to the dollar and has been edging towards 4.70. Food prices are increasing much faster than the headline inflation rate of 2.8% indicates. People are suffering financially, and these issues need to be solved urgently.
Raise OPR and gold reserve
Bank Negara Malaysia will be forced to raise interest rates once again in the very near future if it moves Malaysia’s relative negative interest rates into the positive compared with US rates.
That would make the ringgit more attractive, which may entice more capital inflow.
However, higher interest rates would devastate households and businesses, where loan repayments will become much higher.
For businesses, the cost of doing business will increase, causing further strain on liquidity, slowing down the velocity of money, thus slowing down economic activity.
Local banks must look at new methods to weaken the impact of loan repayments to their customers. Not only can the timeframe of loan repayments be extended, but repayments could be made on a weekly basis to lower the base loan principal quicker.
Raising the overnight policy rate is not the only thing Bank Negara can do to stem the slide of the ringgit. The central bank could increase its holdings of gold.
Malaysia’s physical stock of gold stands at 38.88 tonnes at the end of 2022. This is one of the lowest gold holdings by any central bank in the region.
Gold acquisition would also act as a hedge against inflation and lessen the ringgit’s dependence upon the US dollar. Malaysia produced 1.8 tonnes of gold in 2022 and the country could easily expand upon this through exploiting untouched deposits still in the ground.
Minimum income net
Malaysia must consider introducing a permanent minimum net income for those in need. This would offset some of the cost of living increases for many. Such a policy may cost in excess of RM35 billion per annum, around 8% of government expenditure.
There are ways and means by which the present government could finance the required expenditure of such a welfare programme. Quite simply, the government could do three things:
- Government spending: The finance ministry could set up a “razor gang” to look intensively at all government expenditure and cut all unnecessary expenditure. This could start with cutting subsidies that don’t really benefit the poor.
The expenditure of each ministry can be recalculated through “zero based budgeting” to determine how much each ministry’s budget allocations can be reduced without affecting performance.
- The government must look at leakages and work on ways to plug, or at least minimise, them. This would include expenditure on unnecessary programmes, wastage and leakages through procurement programmes.
- Finally, the government must look at corruption along the whole spectre of government organisations.
Redefining Islamic banking
Malaysia is blessed with an Islamic banking system, which can play a frontline role in assisting the rakyat to weather the rising cost of living.
Islamic banks could uncouple lending costs to consumers from prevailing interest rates, moving the system out of the shadow of riba.
The banks could also share their bumper profits with consumers, by lowering the costs of borrowing. This is true taqwa, a noble objective of Islamic banking.
As most Islamic banks are GLCs, or quasi-GLCs, the finance ministry could easily influence the boards of banks to pursue these initiatives.
Bring home export earnings
According to Bank Negara, companies and exporters have retained more proceeds in foreign currencies, indicated by the rising foreign currency account balances, which could lead to an imbalance in market flows.
Procedures need to be established to encourage exporters to repatriate funds for exports in ringgit. Errant companies could be forced to deal in irrevocable confirmed letters of credit if they don’t repatriate funds from external sales.
Move away from the US dollar
Malaysia must move away from the US dollar and trade in Asean currencies. The days of the dollar as the prime international trading currency are numbered, and Malaysia could begin developing bilateral and multilateral international trade payment agreements.
Malaysia could make overtures to join the Brazil, Russia, India, China and South Africa (BRICS) trade grouping to expand trade as well.
Monopolies, tariffs, and approved permits (APs) on the import of food must be eliminated to reduce the cost of food.
Supply chains must be streamlined, where middlemen, brokers, and rent-seeking companies with import licences must be eliminated where possible to reduce costs.
These are all unnecessary draconian restrictions on trade that the nation can no longer afford. The savings can be passed on to consumers.
With more than 60% of food requirements imported, food security in the face of a falling ringgit must become a high priority.
Malaysia must invest in food production in a way that has never been done before. This can be undertaken through a three-tier approach.
- Rural youths should be immediately given the opportunity to learn and train in agricultural activities, including market gardening, cash crops, cattle and goat herding, poultry, and aquaculture.
They must be trained to become agro-entrepreneurs and focus upon market-sectors where there are shortages.
Malaysia must have an SME and smallholder revolution, as opposed to allowing GLCs to control Malaysian agriculture.
- Larger companies could focus on hi-tech vertical and/or factory farming of market vegetables in urban areas, which are close to consumers. These can be set up and operational very quickly with off the shelf technologies.
- Community urban market gardening should be massively expanded and encouraged by the local government, which could supply plots of land to community groups.
Land availability is not a question in Malaysia. GLCs like Gamuda, Sime Darby, and MRCB have massive land-banks. They could provide land to entrepreneurs for agro start-ups, so they could quickly enter the market.
This may not be the plan, but there needs to be something on the table to start from.
The views expressed are those of the writer and do not necessarily reflect those of FMT.