Tengku Zafrul says the current economic situation is far different from the Asian Financial Crisis of 1997/1998 which was the worst that Malaysia has ever faced
by AUFA MARDHIAH / graphic TMR
FINANCE Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz asserted that Malaysia is not facing or heading towards any economic or financial crisis even though the country is hit by several challenges caused by external factors that are beyond the government’s control.
Answering Bukit Bendera’s MP Wong Hon Wai (PH-DAP) question regarding the financial crisis that was formed due to the plunge in the value of the Malaysian ringgit against the US dollar, the increasingly critical inflation rate and the increasingly steep debt of the federal government, Tengku Zafrul said the current economic situation is far different from the Asian Financial Crisis of 1997/1998 which was the worst that Malaysia has ever faced.
“The fundamentals of Malaysia’s economy and financial system are now much different. This is due to various economic and financial reforms implemented following the Asian Financial Crisis, such as a more diversified domestic economic structure, supported by a well-capitalised financial system and a strong external position.
“For example, the country’s financial market is now very open with high foreign investor participation, and we have a current account surplus, fuelled by diversified exports. So far this year, the current account remains positive with a total of RM3 billion in the first quarter (1Q) and RM4.4 billion in 2Q,” he said during the Third meeting of the Fifth Term of the 14th Parliament.
On steps taken by the government through Bank Negara Malaysia (BNM) to manage risks involving foreign exchange (forex), he stated that BNM has taken several steps to manage the issue, despite the world bank there is no easy or quick solution to deal with the challenges faced by the value of the ringgit against the US dollar.
“The first step is to use operational policy instruments to ensure orderly conditions in the forex market. Although BNM does not target any exchange rate level, the central bank strives to avoid drastic or extreme changes in the value of the ringgit. These actions will help businesses plan, as well as implement business and investment decisions better.
“Secondly, BNM ensures that banking institutions and corporate companies in Malaysia take prudent measures in facing forex risks and protect the ringgit from speculative activities. It can reduce the risk of excessive ringgit rate changes. For example, BNM has introduced value protection instruments such as dynamic hedging to provide flexibility so that financial market participants and the business sector can better manage the risk of foreign currency exposure. In addition, most of the company’s foreign debt is in the form of loans between related companies and trade credits. These loans are generally subject to flexible terms and at concessional rates or supported by foreign currency export earnings.
“The third step is to implement several initiatives to increase access and attract foreign investors in the domestic bond market, including efforts to improve the liquidity of secondary market bonds, as well as strengthen the structure and liquidity of the forex market. The volume of local daily forex transactions continues to increase to reach an average of US$13.3 billion (RM61.84 billion) so far, compared to US$11.3 billion in 2021 due to two-way exchange flows,” he further explained.
In addition, he also stated that the government will continue to intensify efforts in strengthening the sentiment of foreign investors towards Malaysia through the implementation of policies that are able to increase Malaysia’s attractiveness as an attractive investment destination, as well as prioritising the implementation of the environmental, social and governance agenda to ensure Malaysia remains competitive at the global stage.
Moreover, Tengku Zafrul asserted that the country’s financial system and the stock market continue to function well and in an orderly manner.
“In Malaysia, so far, our stock market still recorded a total net foreign investment of RM6.6 billion, compared to the total net capital outflow for the entire developing Asian countries excluding China amounting to almost RM313 billion.
“In addition, fundraising activities, or with permission, fundraising activities on Bursa Malaysia remained robust with a total of RM7.2 billion as of the end of September.
“For the private bond market, financing activities continued to function well with funds collected amounting to RM72 billion as of the end of August, while for the government bond market, this amount was RM118.7 billion for the same period,” he said, answering Pontian’s MP Datuk Seri Ahmad Maslan (Barisan Nasional-Umno) question on the latest developments regarding the country’s capital market – the stock and bond markets which are causing concern as the KLCI Index continues to fall below the 1,400 point level so far.
However, he also suggested for Malaysia be sensitive to world developments that also have an impact on the country’s financial market — such as the increase in interest rates by the central bank in the US by 300 basis points so far (expected to be further increased to 4.75% by the end of 2023), as well as steps by more than 80 central banks around the world that have increased their interest rates.
“According to data from Reuters, in total, more than 300 interest rate hikes have been implemented over the past 12 months. As a result, it is estimated that the stock market around the world experienced losses amounting to US$9 trillion, or RM41.9 trillion. If calculated together with losses in the world bond market, the amount of these losses is greater, which is around US$46 trillion, or RM214 trillion.
“Although as of the end of September, the Bursa stock market tracked by the FTSE Bursa Malaysia KLCI Index has declined by 11%, stock markets in other countries have also declined — Korea by -27.6%, Hong Kong (-26.4%), the US (-24.8%), Germany (-23.7%), France (-19.4%), the Philippines (-19.4%), China (-16.9%) and Australia (-13%,)” he further added.