The World Bank Economist Attributes Ringgit’s Poor Performance to Lack of Competitiveness in Malaysia

The Decline of the Ringgit: A Look at Malaysia’s Competitiveness

In recent days, the Malaysian ringgit has been on a downward slide, hitting its lowest value this year on February 20. Many factors have been attributed to this decline, with the World Bank’s lead economist for Malaysia, Apurva Sanghi, pointing to the lack of competitiveness in the country as a key reason.

According to Sanghi, Malaysia’s poor performance can be traced back to the aftermath of the 1998 Asian financial crisis. While many Asian countries also struggled during this time, Malaysia’s lack of reform and long-term solutions have had a lasting impact on its economy.

Sanghi highlighted that Malaysia opted for short-term measures to boost the ringgit immediately after the financial crisis, but these actions ultimately hurt the currency in the long run. As a result, Malaysia’s GDP and exports suffered, leading to a decline in competitiveness compared to other countries in the region.

The economist also pointed to the 1Malaysia Development Berhad (1MDB) financial scandal as a contributing factor to the ringgit’s poor performance. The scandal not only dented investor confidence but also had a significant impact on the country’s economy.

Sanghi compared Malaysia’s situation to that of countries like Thailand and South Korea, which he believes reformed more effectively after the 1998 financial crisis. As a result, their currencies, the baht and the won, outperformed the ringgit in the long term.

While external factors such as China’s economic slowdown and the United States’ interest rate hikes have also played a role in the ringgit’s decline, Sanghi emphasized that domestic conditions and responses are crucial in determining a country’s currency value.

Despite Malaysia’s challenges, Sanghi noted that there are examples of countries like Vietnam, which have managed to perform better than the ringgit despite facing similar external pressures. This highlights the importance of domestic reforms and policies in maintaining competitiveness in the global market.

As Malaysia continues to grapple with economic challenges, it is clear that addressing long-standing issues of competitiveness and implementing effective reforms will be crucial in stabilizing the ringgit and ensuring sustainable growth in the future.