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 face 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. This reflects the gradual slowdown in manufacturing production and gross domestic product growth towards the end of the third quarter of 2022, following sustained rises throughout the second quarter this year.
Whilst much attention has been given towards 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 billion of Sustainability Sukuk with US dollar at RM4.12, thereby raising RM5.35 billion for Malaysia.
With the ringgit spiralling towards the 24-year historic low of US dollar at RM4.50, this will increase the cost of US-denominated debt payments. The Edge reported that based on the level of US dollar at RM4.45, the ringgit-equivalent owed is now RM5.8 billion, or RM435 million higher, for the principal alone. The weaker ringgit means that total interest payments for the two sukuks are now about RM210 million extra by the end of the loan tenure before 2052.
In short, Malaysia borrowed RM5.3 billion in April 2021 with the US dollar at RM4.12. Malaysia would have to repay RM8.6 billion (principal plus interest) at the current exchange rate of US dollar at RM4.45 by 2052. The principal of the sukuk to be repaid would be RM7.94 billion if the ringgit had remained at the US dollar at RM4.12 level. In other words, Malaysia would have to pay an extra RM660 million for the two sukuks due to the current weaker exchange rate of US dollar at RM4.45 level. The only positive is that the ringgit might still appreciate over the course of the 30 years term of the sukuk.
1MDB US Dollar Bonds Totalling USS7.5 Billion Due These Two Years.
However, the three tranches of US dollar bonds totalling US$7.5 billion that were arranged by Goldman Sachs for 1Malaysia Development Bhd (1MDB) in 2012 (US$1.75 billion at 5.75% per year and US$1.75 billion at 5.99% per year) and 2013 (US$3 billion 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 billion would come up to about RM21.8 billion. At the exchange rate of RM4.45 to the US dollar, the principal amount due for the US$7.5 billion would be higher at RM29 billion — or RM7.2 billion more. A weaker ringgit this year means that the annual interest cost is closer to RM1.5 billion instead of RM1 billion.
In short, the weaker ringgit will cost the Federal government and Malaysians to fork out billions of ringgit more for the foreign-denominated loans. Why do UMNO leaders and the Prime Minister Ismail Sabri choose to remain silent about these losses from the depreciating ringgit?