Event

For the first the time since Malaysia’s independence in 1957, the long-ruling Barisan Nasional coalition (BN) has been defeated in the general elections, allowing thereby a first ever power transfer to the opposition. On 10 May 2018, the four-party Pakatan Harapan coalition (PH) won with a small majority of the seats (113 out of 222) ahead of BN (79 seats, i.e. 53 less than in the 2013 elections). Mahathir Mohamad, former authoritarian PM from 1981 to 2003, BN member until 2015 and father of the country’s successful economic transformation, has become the new PM. The 92-year-old coalition leader has pledged to leave his PM position to Anwar Ibrahim in May 2019 as the jailed ex-opposition leader got a royal pardon and is expected to be released from prison next June.

Impact on country risk

Malaysia has just been hit by an electoral quake as the latest democratic elections have confirmed the previous 2013 polls when the opposition already won the popular vote. BN’s sharp defeat could lead to the future dismantling of the coalition. It has much to do with former PM Najib’s alleged corruption and financial scandals during his long premiership, particularly with the syphoning of the state investment fund 1MDB and the recent attempts to influence the vote through controversial measures (e.g. anti-fake news laws, changes in electoral constituencies…). Moreover, the government has been blamed for the rising cost of living and the widening social inequalities. However, the young and inexperienced opposition coalition has always been fragmented and could thus be instable as it had essentially been formed to oust Mr Najib from power.

During the campaign, the PH coalition put the emphasis on institutional and economic measures. Mr Mahathir has pledged to tackle corruption, improve the rule of law, launch institutional reforms by reducing the PM power, review some large Chinese infrastructure contracts and improve inter-ethnic relations in a country where community polarisation has deepened under Mr Najib’s premiership. Besides, the fact that the Malaysian Islamist party PAS was close to the defeated BN coalition might bring a stop to the creeping Islamisation that has been witnessed over the past years.

On the economic front, Mr Mahathir’s announced populist measures, such as the abrogation of the single-rate Goods and Services Tax (GST) and/or the reintroduction of fuel subsidies, could deteriorate the public finances – characterised by a moderate public debt (under 55% of GDP in 2017) and a moderate fiscal deficit (close to 3% of GDP in 2017) – unless satisfactory alternative revenue sources were proposed. Still, Mr Mahathir is expected to ensure economic continuity by running an open and pro-business policy as he did during his past premiership. Therefore, this historic change of political power is likely to be positive in the short term for Malaysia, especially as it occurs after a very strong 2017 economic year. Credendo’s country risk classifications are expected to remain stable in the forthcoming months.

Analyst: Raphaël Cecchi – r.cecchi@credendo.com