THE plunging ringgit and Bank Negara’s decision to hike the overnight policy rate (OPR) has hit small and medium enterprises (SMEs) hard, a trade association leader said.

SME Association of Malaysia secretary-general Chin Chee Seong told The Malaysian Insight SMEs are suffering losses.

“Although those in the export business stand to gain more with a stronger US dollar, they will have to pay more to import raw material.

“It is a huge loss in the long run for everybody,” said Chin.

“We don’t gain much from exports but we import a lot of raw material and products to sell. That will now add to our production costs. This is not good for SMEs,” he said.

He said more than 40% of the Malayian workforce is employed by SMEs, which contribute to 38.9% of the country’s gross domestic product.

Chin said current predictions for losses for this sector average between 4.2% and 4.6%, but with the continuous depreciation of the ringgit, he said this might rise to 10%.

He said food prices will increase, especially as Malaysia imports a lot of food.

“When prices of food and raw materials increase, we will face inflation. With that, there will be less spending in the market. This becomes a vicious cycle.

“Businesses will be definitely affected because people would be spending less, with less money,” he said.

Chin said the OPR hike will not help businesses.

“With the OPR hike and other loan repayments, people are becoming thrifty and not spending frivolously.

“More money is being paid to service loans. This directly impacts SMEs, which make up a majority in retail markets,” he said.

In May, the central bank raised the OPR by 25 basis points, restoring it to the pre-pandemic level of 3%. The hike was the fifth since last May.

Economists are warning the ringgit may weaken further against the US dollar to as steep as 4.75 by the third quarter of 2023, bogged down by higher global interest rates, a risk-off environment and sluggish growth in China.

They said the lack of a comprehensive economic strategy from the government may further weaken the local note.

Chin said the government needs to give serious consideration to curb the continuous depreciation of the ringgit to prevent businesses from suffering further.

“This is something we cannot afford to let continue at the moment, especially when business has been pretty bad during the first five months (of the year),” he said.

Chin said SMEs are also struggling with financing upgrades for their operations to keep up with Industry 4.0 (IR4.0).

“The machines we want to buy from abroad for automation have become more expensive now, and this further slows down the IR4.0 implementation,” he said. – June 3, 2023.