Stronger ringgit and its impact on Malaysia and Sabah

RISING strength in the Malaysian ringgit, which has pushed the United States dollar below RM4 for the first time in several decades, marks an important moment for Malaysia. Currency appreciation often signals confidence in a country’s economic direction, yet the effects extend well beyond the world of finance. A stronger ringgit shapes the daily experience of households, the cost structure of businesses, the plans of investors and the development path of individual states, including Sabah.

Understanding the meaning of this development requires attention to both the national landscape and the particular circumstances of Sabah, whose economy responds to currency movements in distinctive ways.

The strength of the ringgit arises from several international and domestic factors. Global financial conditions have shifted as inflation in the United States cools and the United States Federal Reserve adopts a more accommodative stance on interest rates. When United States bond yields ease, the returns from holding American treasury securities become less appealing, prompting investors to look elsewhere for stronger prospects. Capital therefore tends to move toward emerging economies that offer stability and room for growth. Malaysia has benefited from this shift, as its inflation has remained within a manageable range, its fiscal reforms have improved sentiment and the conduct of monetary policy by Bank Negara Malaysia has sustained credibility.

Broader regional trends reinforce this environment. Southeast Asia has attracted renewed interest from global companies seeking to diversify production chains and avoid overconcentration in any single major economy. Malaysia, with its manufacturing capacity, established ports and strong electrical and electronics sector, has become an appealing destination in this diversification process. The rise of the ringgit therefore reflects a wider alignment of factors that place Malaysia in a favourable position.

The appreciation of the ringgit influences Malaysians in various aspects of daily life, starting with the cost of imported goods. Malaysia relies heavily on imports for essential items, consumer products, industrial components and technological equipment. A stronger ringgit reduces the cost of purchasing these goods from abroad. Families shopping for children’s school supplies or electronic devices observe prices becoming more manageable. Imported groceries such as dairy products, wheat and beef reach Malaysian shelves at lower prices, easing inflationary pressure and improving household welfare.

Businesses also experience meaningful benefits. Importing machinery and capital equipment becomes more affordable, clearing the way for modernisation. A technology firm in Selangor that aims to acquire precision machinery from Japan faces a more manageable investment. A renewable energy company expanding a solar farm finds it easier to finance the purchase of photovoltaic modules. A hospital upgrading diagnostic equipment experiences less financial strain. These improvements encourage productivity and support long term growth.

Export oriented industries, however, enter a more complex period. Much of Malaysia’s export revenue originates from goods denominated in United States dollars. A manufacturer supplying electrical components to clients in Europe or USA finds that each dollar of revenue converts into fewer ringgit, resulting in slimmer margins. Plantation companies producing palm oil or rubber encounter similar challenges, as their products are priced internationally. Even major energy producers experience a relative decline in local currency earnings. These shifts influence dividends paid to the government and shape fiscal planning.

Malaysia’s fiscal position reflects a blend of constraints and advantages when the ringgit strengthens. Revenue from exports appears smaller once converted into domestic currency, yet the cost of servicing foreign denominated loans eases. With fewer ringgit required to meet external obligations, the government gains greater room to allocate resources toward economic stimulus, infrastructure investment and social welfare. This development contributes to a more stable long term fiscal outlook.

Tourism presents another area where the stronger ringgit generates mixed outcomes. International visitors perceive Malaysia as comparatively more expensive when the ringgit strengthens. Travellers from the United Kingdom, South Korea or Australia exploring options in Southeast Asia may shift their attention toward destinations offering greater currency advantage, such as Thailand or Indonesia. Meanwhile, Malaysian families enjoy stronger purchasing power abroad. A holiday in London, Osaka or Melbourne becomes more accessible. Domestic tourism operators therefore adjust their strategies, strengthening marketing efforts and improving services to attract local visitors who now have additional choices overseas.

These national trends matter even more in Sabah, where the economy is shaped by its distance from the peninsula, its dependence on natural resources and the major role tourism plays in creating jobs and income. One of the clearest benefits of a stronger ringgit for Sabah comes from cheaper imported goods. Since transport and logistics make up a bigger part of prices in East Malaysia, any improvement in the exchange rate reduces costs more significantly than in the peninsula. Expenses such as freight, insurance and distribution fall as soon as the ringgit gains strength, and these savings move through the supply chain without delay. Retailers in places such as Sandakan, who usually keep smaller stocks and change prices more often to stay competitive, are able to offer cheaper goods sooner. Shoppers then see lower prices on items like baby formula, cleaning products and electronic appliances. Construction companies find it easier to afford imported steel, cables and equipment while households experience noticeable relief in their everyday spending.

Sabah’s infrastructure ambitions gain additional momentum in this environment. Major projects, including the expansion of the Pan Borneo Highway, upgrades at the Sepanggar Bay container port and proposed improvements to regional airports, depend heavily on imported materials and machinery. With a stronger ringgit, project budgets stretch further and planning becomes more manageable. Sabah gains a valuable window to accelerate infrastructure development and enhance its connectivity with domestic and global markets.

The tourism sector, however, faces a more fragile situation. Sabah enjoys global recognition for its natural attractions, including its beaches, coral reefs, islands and mountain landscapes. Destinations such as Sipadan, Mabul, Kundasang and Mount Kinabalu attract nature enthusiasts from across the world. A stronger ringgit makes Sabah comparatively more expensive relative to other regional destinations. A family from Germany weighing a holiday in Sabah against a trip to Bali may find Bali more financially appealing. Even a small reduction in foreign visitor numbers affects local economies as tourism supports a web of small operators, including guides, homestays, restaurants and dive centres.

Domestic tourism also experiences change. For many years, travellers from Kuala Lumpur, Selangor and Johor have contributed significantly to the tourism industry in Kota Kinabalu, Kundasang and Semporna. With the renewed strength of the ringgit, Malaysians find overseas travel more accessible, and more families may choose Phuket, Seoul or Tokyo in place of domestic destinations. Tourism operators in Sabah therefore face greater pressure to innovate, diversify and enhance value in order to retain their domestic audience.

Sabah’s dependency on commodity based sectors introduces additional challenges. Palm oil, rubber, petroleum products and cocoa play an essential role in the state’s economy. Since these commodities are priced internationally, their value in ringgit terms is diminished when the national currency rises. Small scale farmers feel this most acutely. A smallholder in Lahad Datu selling fresh fruit bunches observes slimmer monthly income even when global prices remain stable. Larger plantation companies may delay investment or equipment upgrades because their earnings translate into fewer ringgit. State revenue also reflects this shift as petroleum royalties contribute fewer ringgit with a stronger national currency. Rural development programmes, healthcare initiatives and education projects may therefore progress at a slower pace unless supported by alternative revenue sources.

Yet the stronger ringgit also opens new avenues for Sabah’s long term transformation. Lower import costs reduce barriers to industrial upgrading. A fish processing firm in Tawau can more easily acquire advanced freezing equipment from Japan, facilitating access to high value markets in East Asia and the Middle East. A cocoa processor may invest in modern European machinery, enabling the production of higher quality chocolate and confectionery products. With more affordable capital goods, Sabah gains a realistic opportunity to expand value added industries and reduce reliance on raw commodity exports.

Sabah’s strategic position strengthens these prospects. Its proximity to Brunei, the southern Philippines and Kalimantan, where Indonesia is developing its new capital Nusantara, places the state near an emerging economic corridor. A stronger ringgit makes equipment for port expansion, warehouse automation and advanced logistics systems more accessible, improving Sabah’s capacity to become a regional gateway for trade and supply chain activity. As Borneo’s economic significance grows, Sabah stands to gain from closer integration with surrounding markets.

For households, particularly in urban areas such as Kota Kinabalu, the benefits of a stronger ringgit appear in everyday purchases. Imported goods such as food items, school supplies, medical equipment and electronic devices become easier to afford, allowing families to stretch their monthly budgets. This improvement enhances spending confidence and supports the broader economy.

Rural communities, however, face a more nuanced reality. While imported goods become more affordable, income from palm oil and rubber tends to soften, placing strain on household finances. State funded development programmes may advance more gradually if revenue streams decline. Addressing these imbalances requires well directed policies that support smallholders, encourage economic diversification and promote downstream processing as a means of generating higher value.

In the wider national context, the stronger ringgit offers Malaysia a blend of opportunities and responsibilities. Enhanced purchasing power, lower import costs, improved fiscal stability and stronger investor confidence provide a foundation for future growth. However, leaner export earnings, heightened competition within domestic tourism and pressure on sectors reliant on foreign currency introduce significant challenges. Policymakers and business leaders face a period in which strategic decisions will shape Malaysia’s resilience and adaptability.

Sabah, with its natural resources, strategic location and dynamic population, stands at a pivotal moment. Although a stronger ringgit introduces short term pressures in tourism and commodity based sectors, it also creates space for industrial upgrading, infrastructure improvements and deeper regional engagement. With thoughtful planning and inclusive policies, this period of currency strength can become a foundation for long term transformation, positioning Sabah to develop a more diverse and sustainable economic future.

Dr Richard A. Gontusan is a Human Resource Skills Training and Investment Consultant. He holds a Master of Arts Degree in Economics from the Southern Illinois University at Carbondale, USA. His views expressed in this article are not necessarily the views of The Borneo Post