Not only the depreciation of ringgit against Singaporean dollar but also against other major currencies in Asia and around the world, leading to relative lower wages in Johor and Malaysia in both nominal and real terms in relation to expected inflations due to the Ukraine war and post-pandemic economic pressure, that has in turn caused the Malaysian diaspora to not only Singapore and many other countries around the world.
The continuous depreciation of Malaysian ringgit has not brought about better wages for the local workforce and neither improved their purchasing power in real and nominal terms due to sluggish transformation of Malaysian industry from labour-intensive industries that depend heavily on cheaper, lesser skilled foreign workforce to more technology-intensive and automated industry 4.0. The stagnant economic modelling and a failing education system have also contributed to increasing capital outflows and driving local skilled workers overseas.
Malaysia had a net capital outflows of RM 2.263 billion in the 4th quarter of 2021 in accordance with the Department of Statistics. Between 2019 and 2021, except in the 1st and 3rd quarters of 2021 whereas Malaysia had net capital inflows of RM 15.797 billion and RM22.686 billion respectively, Malaysia had a total of capital outflows in all other quarters amounted to of RM 123.097 billion, and a net total capital outflow of RM 84.614 billion in the past three financial years. The persistent capital outflows showed both domestic and foreign investors’ diminishing confidence in the present regime of managing the country’s economy.
As temporary monetary measures, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to increase the Overnight Policy Rate (OPR) by 25 basis points to 2.00 percent. The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 2.25 percent and 1.75 percent, respectively.
These monetary measures are only temporarily to absorb the shock faced by the depreciation of ringgit and in an attempt to contain inflation while maintain its exchange rate flexibility, in the midst of the US dollar appreciation after the US Federal Reserve has announced its biggest interest rate increase by half a percentage point, to a range of 0.75% to 1% after in more than two decades as it toughens its fight against fast rising inflation.
Nonetheless, there are also many other detrimental long-term factors have resulted in weaker Malaysian ringgit resulting in the Malaysian diaspora unless Malaysia is determined to reform her financial fundamentals, revamp her infrastructures, overhaul her outdated race-dominant socioeconomic and education policies, and combat corruption and illicit capital outflows as a dire national crisis after the COVID pandemic.
Not only for the COVID pandemic, a dysfunctional pseudo-democracy, declining transparency in our financial institutions, stagnant development of infrastructures and more importantly, the outdated race-dominant socioeconomic and education policies have made Malaysia less attractive for long-term investment as compared to other neighbouring countries, reflecting only partly by weakening ringgit against other major Asian regional and world currencies in the last decade. It has affected our populace’ purchasing power, quality of life, and more and more young talents are leaving the country for greener pastures elsewhere due to lowering purchasing power of our own currency.
In the past 10 years, Malaysian ringgit has depreciated against the major regional currencies, not only Singaporean dollar by -22%, -21% against Thai Baht, -13% Philippine Peso, -22% Vietnam Dong, -29% Cambodia Riel, -24% Renminbi, -28% Taiwanese New Dollar, -29% Hong Kong dollar, -21% South Korean Won, -29% US dollar, -13% Euro, -7.9% Sterling Pounds, -25% Swiss Franc.
For Malaysia to improve investors’ confidence, many of her institutional weaknesses have to be corrected. Most importantly, Malaysia has to address the issue of corruption and illicit capital outflows as a dire national crisis after the COVID pandemic. In the long run, corruption and illicit capital outflows would bring about more pressing socioeconomic upheavals especially after the immediate post-pandemic period.
According to the report by Global Financial Integrity, the developing countries with the largest value gaps identified in trade with 36 advanced economies in 2018 are China (US$305.0 billion), Poland (US$62.3 billion), India (US$38.9 billion), Russia (US$32.6 billion) and Malaysia (US$30.7 billion). Malaysia lost between US$22.9 billion (RM94.22 billion) and US$33.7 billion (RM138.66 billion) in illicit capital outflows from 2006 until 2015. Malaysia lost up to about US$431 billion (RM1.8 trillion) in illegal flow of money between 2005 and 2014.
In conclusion, Malaysia possibly has the highest illicit capital outflows per capita in the world, leading to massive amounts of government revenue losses due to tax evasion that could have been used to promote our education system and TVET to upgrade our workforce’s skill, increase workers’ productivity and earning capacity.
Malaysia’s civil society should be more proactive in pursuing the issue of illicit capital outflows that is closely related to corruption and it has become a national crisis. So far only one prominent NGO that is Penang Consumers’ Association had called for setting up a Royal Commission of Investigation to investigate allegations made in the Pandora Papers, Panama Papers and Paradise Papers against many prominent Malaysian leaders and their family members for being involved in bringing offshore illicit capital outflows with unknown sources of their fortunes.
The purpose for the RCI is not to seek revenge but to reveal the truth with an eventual amnesty in mind, and only then Malaysia would be ready to thrive again as a nation. Malaysians deserve a new lease for better life starting from this crucial determination to reveal the truth, to know the truth, to reconcile with the truth in regards to the severity of systemic corruption and to move on with a determined will to reform our institutions.