The Government should stop being in denial that the plunging ringgit does not have a high impact on Malaysia’s debt when the 1MDB US$6.5 billion bonds alone that were arranged by Goldman Sachs may cost an additional RM8.5 billion at the current 24 year low of RM4.65 to the US dollar. Minister in the Prime Minister’s Department Mustapa Mohamed is doing a great disservice to the nation by refusing to acknowledge the high cost that will be paid with the feeble excuse in Parliament, that only 5% of Malaysia’s debt is denominated in the US dollar.
Assessing the cost alone of the 1MDB US US$6.5 billion bonds arranged by Goldman Sachs in 2012 and 2013, the government will have to pay an extra RM 8.5 billion to repay the principal. At RM3.35 to the US dollar when the 1MDB US$ 6.5 billion bonds were issued then, the principal amount of the US$6.5 billion bond would come up to about RM21.78 billion.
At the current exchange rate of RM4.65 to the US dollar, the principal amount due for the US$6.5 billion would be higher at RM30.23 billion — or nearly RM8.5 billion more. Cumulative interest would have totalled just over RM1 billion a year and RM10.5 billion in the past decade. A weaker ringgit this year means that the annual interest cost is around RM1.5 billion instead of RM1 billion.
In short, the weaker ringgit will cost the Federal government and Malaysians to fork out RM8.5 billion ringgit more for the principal of the US$ 6.5 billion 1MDB bonds. Is the government paying an additional RM8.5 billion more from foreign exchange losses just for one 1MDB US$ 6.5 billion bonds not of high impact, without taking into account other currency losses from US denominated debt?
In the interests of transparency and public accountability, Mustapa must disclose the extra payment to be borne by the government due to foreign exchange losses from its US denominated debt. Whilst the depreciation of the ringgit is due in part to the aggressive interest rate hikes in the US, Mustapa should not ignore the fact that the ringgit has also depreciated by more than 4% this year against the Indonesian rupiah and dropped to a historic low of RM 3.26 to the Singapore dollar.
The question remains moot whether the Malaysian economy is in a crisis with a plunging ringgit, rising inflation, policy U-turns, bad governance and severe labour shortages jeopardizing its positive growth trajectory. However, the reality is that the government continues to disappoint by failing to carry out much needed structural reforms advised by both the World Bank and Bank Negara to become an innovation-based economy to secure its future.