Despite political turbulence, Malaysia’s economic fundamentals remain sound: Analysts

Despite political turbulence, Malaysia’s economic fundamentals remain sound: Analysts

Malaysia skyline
File photo of Kuala Lumpur skyline. (Photo: AFP)

KUALA LUMPUR: While uncertainty over the federal administration is clouding the horizon, Malaysia’s strong economic fundamentals means it is likely to be resilient, said economists and industry players interviewed by CNA.

However, the political crisis needs to be resolved quickly or Malaysia could be plunged into more uncertainty, they said.

On Monday (Feb 24), Dr Mahathir Mohamad dropped a bombshell when he announced his resignation as the prime minister and chairman of Parti Pribumi Bersatu Malaysia. 

READ: Malaysia's king summons Mahathir amid showdown with Anwar for PM

Malaysia’s stock exchange closed at its lowest point since late 2010. The ringgit also weakened significantly against the greenback.

The next day, however, Malaysian stocks and its currency rebounded after the king accepted Dr Mahathir’s resignation and appointed him interim prime minister.

“The current political disruption has sent a shockwave, and it will cloud the outlook. But we cannot say outright that this will break the country’s economic back,” Mr Lee Heng Guie, the executive director of think-tank Socio-Economic Research Centre told CNA.

“It (the stock market) is calmer now, but the currency is still under pressure because of the coronavirus and global outlook,” he added.

He said an anticipated slowdown in Q1 of 2020 will come mainly from the impact of the COVID-19 outbreak, which has affected tourist inflows and disrupted supply chains between Malaysia and China.

Professor Yeah Kim Leng, an economics professor with Sunway University Business School noted that indeed, the risk of political instability may have derailed Malaysia’s path to a high-income nation.

However, there was some comfort in the country’s economic resilience, he said.

This was due to Malaysia’s business-friendly environment, well-functioning markets and a relatively strong private sector, said Prof Yeah. He added that the Pakatan Harapan government had earlier embarked on institutional reforms and addressed the issue of corruption.

“Unless there is a reversion to the old regime’s (Barisan Nasional) ways, it would be premature to conclude Malaysia’s economic back was broken by the current turbulence,” added Prof Yeah.

POLITICAL STALEMATE UNLIKELY TO BE PROLONGED

Mr Lee and Prof Yeah said the current uncertainty is not expected to be prolonged. 

Mr Lee said he expected the situation to be resolved in two weeks under a best-case scenario. But if there is a general election and the need to form a new government, things could take longer to settle down

“We’ve always pushed political stability as our tagline … A lot of people will be watching to see if there is continuity and stability,” he added.

READ: Mahathir says he wants to lead a non-partisan government

As of Thursday morning, there was still no clarity on who would form the next government.

Prof Yeah said if Dr Mahathir could form a government, this will give him an opportunity to retain performing ministers, while replacing underperforming ones.

A stronger, inclusive line-up would help regain public confidence, he said.

“A weak government and unstable coalition will lead to prolonged uncertainty and steady erosion of investor confidence. Ultimately that will result in Malaysia’s economic decline as investment dwindles and capital and talent take flight,” Prof Yeah said.

STIMULUS PACKAGE FOR COVID-19 IMPORTANT

Amid the political uncertainty, those interviewed said that it was important to address the economic problems brought about by COVID-19.

Dr Yeoh Oon Tean from the Federation of Malaysian Manufacturers said the political situation would have a shorter impact as compared to the COVID-19 outbreak, which was disrupting supply chains for local manufacturers.

READ: Anwar confirms he is Pakatan Harapan's choice for PM post

“Everyone has concerns when things like this (a political crisis) happen, but we can also see how fast action is being taken by the king and the interim prime minister to stabilise the situation,” Dr Yeoh said.

“Based on past track record, Malaysia has always been a very stable country to invest in, and foreign investors will tend to take a long-term view,” he added.

So far, 22 people have tested positive for COVID-19 in Malaysia. All have recovered except for two people. 

Dr Mahathir is expected to unveil a stimulus package on Thursday, in his capacity as interim prime minister.

Sectors most affected by the outbreak including tourism, aviation, retail and hospitality services are expected to benefit from the stimulus package.

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Mr Lee, who took part in consultation sessions with the Finance Ministry for formulating the stimulus package, said as this was not a supplementary budget, the aid would be very targeted and specific.

“The next few weeks will be crucial, assuming the package rolls out in time, because there’s still urgency to mitigate the short-term economic impacts. The technocrats are already moving on the ground,” Mr Lee said.

Source: CNA/zl

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