PUTRAJAYA, Aug 20 ― Prime Minister Datuk Seri Najib Razak said today that Malaysia's strong economic fundamentals negated the need for currency or capital controls amid the ringgit’s plunge in value and an ongoing foreign investment flight.

He added that the country's gross domestic product (GDP) grew nearly 5 per cent in the previous quarter, which he credited to the diversification of the country's economy via the introduction of the Goods and Services Tax (GST) as well as the reduced reliance on oil and gas revenue.

“The fundamentals of the Malaysian economy remain sound as reflected in the real GDP growth of 4.9 per cent in the second quarter of 2015 announced last week.

“Given the strong fundamentals and significantly different environment presently compared to during the Asian financial crisis of 1997-1998, the Malaysian government will not introduce capital controls nor peg the Malaysian ringgit to the US dollar,” he said during a press conference at the Prime Minister's Office today.

Najib explained that the reliance of the Malaysian economy on mining, which includes oil and gas, dropped from 41 per cent of the total government revenue in 2009 to 30 per cent in 2014.

He also said that Putrajaya's commitment to implementing fiscal reforms, like with the GST, has also helped reduce the fiscal deficit.

“The Malaysian government remains committed in pursuing its fiscal reforms and consolidation measures, including following through on the implementation of the Goods and Services Tax (GST) and gradual reduction in the fiscal deficit towards achieving a balanced budget by 2020,” he said.

Najib also noted that the reason for the ringgit's sharp depreciation was mostly due to external factors, specifically the strengthening of the US dollar.

“There are contributory factors but the main reason is the overwhelming strengthening of the dollar and that has affected practically all currencies.

“We are actually almost equivalent to Australia, New Zealand in terms of performance of our ringgit, and the Yuan also has some depreciation,” he said.

Since last year, the ringgit has lost over a fifth of its value against the US dollar, now hovering around RM4.10 to the greenback and below the RM3.80 peg that was imposed during the 1997 Asian Financial Crisis.

Although the sharp drop was not unique as it was similarly observed in other commodities-driven countries including Indonesia and Australia, Malaysia faces political instability amid the 1Malaysia Development Berhad (1MDB) controversy.

This was aggravated by a purported police crackdown against investigators probing allegations into the state-owned firm, including the dissolution of a special multi-agency taskforce following the sudden removal of Tan Sri Gani Patail as Attorney-General last month.

Investors, particularly foreigners, have begun to shift their funds to less volatile locations, sparking speculation of currency and capital curbs, but Bank Negara has said it will not take such measures.