IN their frenzied pursuit of an early general election at all costs, UMNO’s top leadership has stopped focusing on the state of the economy in the country, particularly soaring prices and food inflation, severe labour shortage as well as the cost impact of the depreciating ringgit.
Malaysians are suffering a drop in the standard of living with the Consumer Price Index (CPI) increasing by 4.4% and food inflation by 6.9% for July 2022.
Businesses, on the other hand, are facing a difficult environment, as shown by the S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) declining to 50.3 in August from 50.6 in July.
The PMI decline reflects the gradual slowdown in manufacturing production and Gross Domestic Product (GDP) growth towards the end of the third quarter of 2022 following sustained rises throughout the second quarter of the year.
While much attention has been given to rising prices, there has been little attention given to the negative impact of the depreciating ringgit, especially on our foreign debt payments.
In April 2021, Malaysia sold US$1.3 bil of sustainability sukuk when the US dollar was at RM4.12, thereby raising RM5.35 bil for Malaysia.
With the ringgit spiralling towards the 24-year historic low of the US dollar at RM4.50, this will increase the cost of US-denominated debt payments. The Edge reported that based on the level of the US dollar at RM4.45, the ringgit-equivalent owed is now RM5.8 bil, or RM435 mil higher for the principal alone.
The weaker ringgit means that total interest payments for the two sukuks are now about RM210 mil extra by the end of the loan tenure before 2052.
Since Malaysia borrowed RM5.3 bil in April 2021 with the US dollar at RM4.12, Malaysia would have to repay RM8.6 bil (principal plus interest) at the current USD exchange rate (US$1 = RM4.45) by 2052.
The principal of the sukuk to be repaid would be RM7.94 bil if the ringgit had remained at the same rate against the US dollar in April 2021 (ie US$1 = RM4.12).
In other words, Malaysia would have to pay an extra RM660 mil for the two sukuks due to the current weaker exchange rate of the US dollar at the RM4.45 level.
The only positive thing is that the ringgit might still appreciate over the course of the 30 years term of the sukuk.
However, the three tranches of US dollar bonds totalling US$7.5 bil that were arranged by Goldman Sachs for 1Malaysia Development Bhd (1MDB) in 2012 (US$1.75 bil at 5.75% per year and US$1.75 bil at 5.99% per year) and 2013 (US$3 bil at 4.4% per year) mature this year and next when the strength of the US dollar is at its peak.
At RM3.35 to the US dollar when the three 1MDB bonds were issued, the principal amount of US$7.5 bil would come up to about RM21.8 bil.
At the exchange rate of RM4.45 to the US dollar, the principal amount due for the US$7.5 bil would be higher at RM29 bil – or RM7.2 bil more.
A weaker ringgit this year means that the annual interest cost is closer to RM1.5 bil instead of RM1 bil.
In short, the weaker ringgit will cost the Government and Malaysians to fork out billions of ringgit more for foreign-denominated loans.
Why do UMNO leaders and Prime Minister Datuk Seri Ismail Sabri Yaakob choose to remain silent about these losses from the depreciating ringgit? – Sept 4, 2022
Lim Guan Eng is DAP national chairman, Bagan MP and a former finance minister.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main photo credit: Bloomberg
