THE world’s major powers must take responsibility for their policy decisions, especially those impacting the global economy, says Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.
He said although the world continues to recover from the effects of the COVID-19 pandemic, various new challenges have emerged that affect the prospects of the global economy, which may slip into a recession.
According to him, these are due to the continuing US-China geopolitical tensions, the unending war in Ukraine, threats of climate change such as floods and droughts in several countries that have affected food supply and China’s zero-COVID-19 policy that continues to disrupt global supply chains.
“These are factors beyond our control. They have triggered a surge in the prices of various commodities and basic goods; hence, raising inflation rates in most countries to levels not seen in decades,” he said.
Tengku Zafrul was responding to various reports, concerns and queries submitted to the Finance Ministry, especially in relation to the ringgit’s value and the nation’s current economic developments.
He added that to combat inflation, the monetary policy decisions of several world powers have affected the positions of developing countries, and Malaysia is not exempted.
The finance minister noted that the US Federal Reserve has hiked interest rates aggressively up to 3.25%, much higher than Malaysia’s overnight policy rate (OPR) of 2.5%.
“While this has led to the ringgit depreciating 10.5% year to date, other currencies have also fallen, at an even higher rate, which proves that this is a global phenomenon,” he added.
“We’re not failures”
Tengku Zafrul also pointed out that while the impact of the rise in the US interest rate has impacted many countries, this does not mean that these countries should be considered “failures”.
“Every country has its own challenges and monetary policies and the currency exchange value of each country is not a benchmark to determine if they are facing a crisis or not,” he explained.
The real definition of an economic crisis, he said, is when the gross domestic product (GDP) declines sharply, unemployment and bankruptcy increase significantly and the overall standard of living is affected.
On the other hand, a financial crisis takes place when there is a sudden depreciation in the value of some of the financial assets within a short period, a sudden fall in the stock market and currency value within a short period and the failure of the Government to repay debts.
The situation in Malaysia today, he added, is different from the years 1998-1999, 2009 or 2020, and what the country is experiencing started from global inflationary pressure that led to uncertainty in the global capital market.
Its impact includes limited access to funds and an increased rate of financing that will continue to affect the economy, he noted.
Tengku Zafrul also said that the special position of the US dollar as the reserve currency of the world and a safe-haven asset has driven global investors to shift their funds to the US amid an uncertain situation, thus increasing the demand for the greenback.
“All these factors will also have an impact on Malaysia’s GDP for 2023, which is projected to be lower than in 2022,” he added. — Oct 2, 2022
Main photo credit: TIME