A STRONGER ringgit is helping to soften the impact of rising global import prices, even as Malaysia faces increased external vulnerabilities and a reduced buffer in import coverage compared with pre-pandemic levels, according to a senior World Bank economist.
Apurva Sanghi said the country’s economic fundamentals have generally improved since before the COVID-19 crisis, placing Malaysia in a stronger position to weather current geopolitical shocks, including tensions in West Asia.
In a post on X, he compared Malaysia’s present economic readiness with its position at the onset of the pandemic in early 2020, noting that most key indicators have strengthened despite a more uncertain global environment.
Growth in gross domestic product rose to 5.2 per cent in 2025, up from 4.4 per cent in 2019, while real GDP per capita increased to RM48,200 from RM42,500. The labour market has also tightened significantly, with unemployment falling below three per cent compared with 3.3 per cent before the pandemic.
“The labour market is also nearing full employment, with the unemployment rate now below three per cent compared with 3.3 per cent before the pandemic,” he said.
However, several indicators have weakened relative to pre-COVID levels, including inflation, fiscal balance, public debt and import cover.
Inflation has edged up to 1.6 per cent from 0.7 per cent in 2019, while the fiscal deficit has widened slightly to 3.8 per cent of GDP from 3.4 per cent. Government debt has also increased to 64.7 per cent of GDP compared with 52.4 per cent previously.
Meanwhile, import cover, a key measure of external resilience, has declined to 5.8 months from 7.5 months before the pandemic.
“Ringgit strength offers some relief against higher import prices, even as import coverage is lower than pre-COVID levels,” he said.
Despite stronger growth, Sanghi noted that inflationary pressures remain contained, reflecting relatively stable price dynamics, although uncertainty surrounding inflation expectations could influence the broader economic outlook.
On fiscal policy, he said the deficit has improved from pandemic-era highs of around six per cent of GDP, pointing to ongoing subsidy reforms and fiscal consolidation efforts.
“From pandemic highs of six per cent of GDP, the downward trend in the fiscal deficit is encouraging, reflecting subsidy reforms and fiscal strengthening,” he said.
Nevertheless, elevated debt levels remain a concern, as rising interest payments could absorb a larger share of government revenue and limit the scope for future fiscal stimulus.
Sanghi highlighted Malaysia’s diversified economic structure, spanning both commodities and manufacturing, alongside a flexible exchange rate and stable financial system, as key factors underpinning resilience to external shocks.
At the same time, he cautioned that Malaysia’s openness leaves it exposed to global price volatility and supply chain disruptions, particularly in fuel, food and fertiliser markets.
Persistently high energy prices could also weigh on investment momentum, including in energy-intensive sectors such as artificial intelligence infrastructure.
The tourism sector, a major growth driver in 2025 that contributed to the country’s first services trade surplus in 13 years, may also face headwinds from rising travel costs, particularly higher jet fuel prices.
On policy, Sanghi said further fiscal adjustments may be required, including a reassessment of fuel subsidies.
“The extent to which the government absorbs costs through subsidies versus passing them on to consumers remains a key policy consideration,” he said, adding that any fuel price adjustments should be implemented gradually to avoid broader economic disruption.
Overall, he said Malaysia is entering the current period of uncertainty from a relatively strong position, albeit with more limited fiscal space.
“It is impossible to say how and when the current uncertainty will end.
“It is not panic but preparation, and not only by the government but also by the people, that is needed,” he said.
The current volatility follows escalating conflict in West Asia after Israel and the United States launched military operations against Iran on 28 February, prompting retaliatory strikes that have heightened risks to global energy markets and trade flows. - March 19, 2026
