Malaysia: Ending post-elections political impasse
Malaysia’s hung parliament has been resolved through a Pakatan Harapan-led unity government.
Group Research - Econs, Chua Han Teng25 Nov 2022
  • Financial markets cheered the clarity of the government’s formation
  • Key focuses of Anwar’s administration include the economy, cost of living, and good governance
  • The cabinet line-up will be the next key announcement to watch
  • Parliament will reconvene on December 19 with a vote of confidence
  • Budget 2023 has to be re-tabled; structural reforms might still face political headwinds
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Malaysia broke its political deadlock five days after the 15th General Elections with the appointment of Anwar Ibrahim, leader of Pakatan Harapan (PH), as the country’s 10th prime minister (PM) on November 24. Domestic financial markets cheered the resolution of the stalemate, with the Malaysian ringgit appreciating vs the US dollar by 2% on the day.

The November 19 elections ended in a hung parliament (see ‘Malaysia: Uncertain times following 15th General Elections’), with the king subsequently involved in appointing the PM and proposing a unity government. Anwar held his first press conference as PM, and we see several key takeaways relating to the government’s composition and top priorities.

First, the unity government would comprise PH, Barisan Nasional (BN) and Gabungan Parti Sarawak (GPS), accounting for 135 out of 222 parliamentary seats. There is also parliamentary support from Warisan, Muda, and Parti Bangsa Malaysia. Anwar also welcomed the participation of other parties on the condition of acceptance of ‘good governance, no corruption, and Malaysia for all Malaysians’. The cabinet line-up, including key economic and finance posts, will be the next key announcement to watch. With the PM coming from PH, the deputy PM positions will likely go to other component coalitions. PH’s election manifesto pledged to have two deputy PMs if it won GE15, one from the Peninsula and one from the Borneo regions. Anwar has previously also promised to reduce the number of cabinet members.

Second, the key priorities of the new government will include the economy and tackling the high cost of living, beyond highlighting the issues of good governance, no corruption, and judicial independence. These were also key parts of various election manifestos. Anwar also promised to uphold the special rights of ethnic Malays during the press briefing.
Third, the new parliament will begin on December 19. The first agenda will be a vote of confidence to test the PM’s leadership and to confirm his credible support. The other immediate economic task for the new administration is to revise Budget 2023 and to re-table it in parliament when the new term commences.

The focus on the economy, including the welfare of the people, especially the poor, and the cost of living, suggests a possible pro-growth revised budget, also considering the formidable external headwinds Malaysia will face in 2023. Yet, the above priorities would have to be weighed against the lower fiscal space the government has on hand following the significant increase in public debt during the pandemic.

On medium-term fiscal sustainability, Malaysia faces structural issues, including falling and low tax revenues as well as higher subsidies and cash assistance. Without a simple majority by a single coalition, the unity government might still face hurdles in potential areas of reforms due to differences in certain policy priorities and ideologies. One uncertainty might be the reintroduction of the Goods and Services Tax (GST) to boost the government revenue base and coffers. The 6% GST introduced in 2015 by the BN-led government was abolished by the PH-led administration after its 2018 GE victory. Another one to watch would be the shift to targeted subsidies mentioned briefly in the previously proposed budget.

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Chua Han Teng, CFA

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