Many concerns are being raised regarding the possibility of the ringgit weakening further against the US dollar, potentially reaching as low as 4.7500 by the third quarter of 2023. This situation, coupled with the lack of a clear economic strategy from the government, is likely to further weaken the local currency, consequently impacting Malaysia’s economy and SMEs in general.
Fan Kah Seong, Advisor and founder of My Buzz Consulting Sdn Bhd, highlighted that the ringgit’s loss of ground to the US dollar is primarily triggered by the ongoing conflict in Ukraine and the significant increase in the US Federal Reserve’s fund rate.
“While a weaker ringgit may benefit exporters, as their earnings will be higher when converted to ringgit, local importers who rely on raw materials and products sourced from overseas will inevitably face higher costs, leading to increased production expenses. As a consequence, consumers will be affected by the higher prices of imported goods, resulting in a reduction in their overall spending power,” Fan explained.
Moreover, he expressed his concerns regarding the implications of a weaker ringgit on the cost of doing business in Malaysia.
“This situation poses a significant challenge for SMEs, as the supply chains within the country will require more cost at each level to procure goods and services. Consequently, prices may escalate, further straining the ability of SMEs to stay afloat,” he said.
When discussing practical ways for SMEs to mitigate the impact of the falling ringgit on their business operations, Fan acknowledged that finding shelter from this storm is challenging. While hedging could be an option, it comes with its own costs.
He suggested that SMEs explore alternative local suppliers who transact in ringgit instead of relying solely on foreign suppliers. By using the local currency as the trade currency, rather than relying heavily on the US dollar, SMEs could potentially reduce their exposure to ringgit volatility resulting from pegging trades in USD.
Fan Kah Seong, with over 29 years of tax experience, was a partner in a Big 4 firm. He retired from public practice in 2022 and has since founded his own consultancy firm called My Buzz Consulting Sdn Bhd. During his career, he provided advisory services across a wide range of industries, including plantation, trading, construction, property development, IT services, logistics, food & beverage, and manufacturing.
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