What’s next for Malaysia?
The unprecedented political transition in Malaysia will test the country’s institutional depth; if the new ruling party fails to deliver in existing policies, some lustre from this historic outcome will fade.
By: Taimur Baig, Chief Economist; Irvin Seah, Senior Economist — DBS Group Research
In a dramatic overnight development, the opposition coalition led by Dr Mahathir Mohamad has secured a simple majority in a historic general election.
With all 222 seats in the country’s Parliament accounted for, the Pakatan Harapan (PH) won 113 seats — enough to form a simple majority and take control of the House. Barisan Nasional, in contrast, won 79 seats, a far cry from the 133 it won in the 2013 election.
According to the Election Commission, over 76% of the 14.3 million eligible voters turned out to cast their ballots, down from 85% in 2013.
Test of unprecedented transition
This election marks the first time Barisan Nasional(the United Malays National Organisation and its allies) has lost an election since the country’s independence in 1957.
Coming on the heels of years of political strife, replete with governance-related allegations which created a mood of general anti-incumbency in the nation, this historic transition will at once attest to Malaysia’s democratic credentials and test its institutional depth.
How the centre-state relationship adjusts to this new landscape will reveal the strength of the country’s political framework.
Populism vs pragmatism
The opposition’s policy platform may not please markets. For instance, the pledge to abolish the goods-and-services tax, if followed through, could dent the fiscal outlook. There will also be some uncertainty in the investment environment, especially with regard to some of the large-ticket infrastructure projects, which the opposition vowed to review during its campaign.
At a time when emerging markets are seeing a rise in funding costs and sustained currency weakness, Malaysia’s markets have held up well so far this year, thanks to recent fiscal reforms and the upside coming from rising oil prices. Whether these gains can be preserved is now open to question.
Risks
The Malaysian people have spoken for a political future devoid of nepotism, governance lapses, and politics of vengeance. If the new ruling party fails to deliver in these areas, and finds the transition difficult, some lustre from this historic outcome will fade.
During the aftermath of the Asian financial crisis in 1998, then-PM Mahathir took Malaysia away from IMF-imposed austerity and pursued a heterodox model of economic policies, including currency and capital controls. The model ultimately helped Malaysia endure a shallower loss of economic output than crisis-afflicted Indonesia, South Korea, and Thailand.
It will be an interesting, but unsurprising, development if those instincts reappear this time round.
To read the full report “Wind of change in Malaysia”, click here to Download the PDF.
Related reports:
Malaysia: Beyond the election and politics
Malaysia: Another stunning performance
