Fitch Solutions’ BMI forecasts more race-based policies in Malaysia

MALAYSIA – State elections held in Malaysia on Saturday (12 Aug) saw opposition coalition Perikatan Nasional’s (PN) increased its foothold across all six states, posing a challenge to Malaysia’s national unity government, which could lead to slower reform momentum.

According to BMI, Fitch Solutions’ Unit, the results of the election imply no change to state governments, however, PN’s seats in state parliaments has increased, which will pose greater challenges to policymaking in Malaysia.

“In light of the weaker-than-expected performance by Pakatan Harapan (PH), we believe that the unity government will be inclined to roll out race-based policies that are in favour of the Bumiputras to shore up support among this core group.

“However, there are implications involved. First, doing so will cause the coalition government to
backtrack on its commitment of implementing needs-based policies as opposed to race-based policies.

“Second, while such policies could prove popular for Barisan Nasional’s support base, it could stoke tensions with other members of the coalition government including the Gubungun Parti Sarawak and Gabungun Rakyat Sabah, leading to a slowdown in reforms and cause policy gridlock,” the research house said in a statemen today.

The research arm forecasts greater risks to Malaysia’s investment outlook and real Gross domestic product (GDP)  growth.

“We currently expect Malaysia’s real GDP growth to come in at 4.2% in 2023 (down from 8.7% in 2022), and timely indicators have already suggested pockets of weakness in Malaysia’s investment landscape.

“Malaysia’s Manufacturing Purchasing Managers’ Index (PMI) has fallen to 47.8 as of July 2023, marking the 12 consecutive month it has stayed below the 50.0 mark which separates contraction from expansion,” it said.

Official results released from the Election Commission showed Malaysia’s Prime Minister Anwar Ibrahim’s Pakatan Harapan (PH) retaining control of Penang, Selangor and Negeri Sembilan, while Kedah, Kelantan and Terengganu continue to fall under the leadership of opposition Perikatan Nasional (PN).

“Against this backdrop, we have revised lower Malaysia’s Short-Term Political Risk Index (STPRI) rating to 71.7 out of 100, from the previous score of 72.9, due to increased difficulties in policymaking within the coalition government.

“The policymaking component has been lowered to 53.3 from 58.3 to account for the challenges the unity government is likely to face amid a slowing economic backdrop and its ability to push through with reforms while holding the multi-party coalition together,” it said.