KUALA LUMPUR, Feb 25 ― The last 48 hours have been unprecedented for Malaysians, a period filled with suspense and political intrigue with the hyperactive-media playing its part by churning out an endless amount of breaking news about the country’s latest political upheaval.
But whatever the end game of this fast-moving political chess, the priority of the government is to ensure the sustainability of the nation’s economy.
“It has to bring back and restore confidence among businesses and investors quickly, especially when the global economy still faces significant downside risks from Covid-19 outbreak and global trade policy uncertainty,” Affin Hwang Investment Bank Research chief economist Alan Tan.
Concerns of the soon-to-be-formed government complicating the implementation of earlier government’s policies remained, despite the announcement of the appointment of Tun Dr Mahathir Mohamad as the interim Prime Minister by the King, he said in a research note here today.
Yesterday, the Yang di- Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah consented to the appointment of Dr Mahathir as the country’s interim Prime Minister not long after accepting the latter’s resignation as the seventh premier.
On the advice of Dr Mahathir, His Majesty had also revoked the appointments of all ministers.
In the three-paragraph statement, the chief secretary to the government Datuk Seri Mohd Zuki Ali said, during the interim period, the interim Prime Minister will manage the country’s administration until the new Prime Minister is appointed and a new Cabinet is formed.
Tan believes the present government will need to continue implementing policies in areas such as institutional reforms, corporate governance, fiscal transparency and consolidation, as well as structural reforms to improve on productivity, the income of the people and generating new growth areas.
“We believe it is important for the government of the day to provide immediate clarity on the economic policies, which need to include strategies on implementation towards long term sustainability of the Malaysian economy,” he said.
Over the near term, the current domestic political uncertainty could further derail consumer and business sentiment as well as spending, but it should not hamper the country's growth momentum further.
“We are maintaining our real GDP (Gross Domestic Product) growth forecast for this year at 4 per cent, lower than the current official forecast of 4.8 per cent, with expectations that the fiscal stimulus package will provide some support and stability to economic growth.”
Before the latest political turmoil erupted, the government was scheduled to announce the economic stimulus package this Thursday especially for aviation, retails and tourism sectors to mitigate the adverse repercussions of Covid-19, which originated from Wuhan, China.
The immediate focus according to him, will be on how the government addresses strategy to support private investment activity, where growth has been slow in recent quarters.
Market observers he said, will be focusing on the government’s strategies to fix the country’s fiscal deficit position, improving macroeconomic fundamentals to maintain the country’s sovereign credit rating outlook by the international rating agencies.
“In our opinion, despite the current political situation, the risk of the country’s sovereign rating outlook being downgraded is manageable, but we believe the government will need to demonstrate its firm commitment to fiscal consolidation (ie. strengthen its revenue collection and cut operating expenditure).”
The previous Pakatan Harapan (PH) government has managed to consistently reduce its fiscal deficit from 3.7 per cent of GDP in 2018 to 3.4 per cent in 2019.
The deficit is estimated to be further lowered to 3.2 per cent in 2020.
“Apart from that, despite the current setback on the reform agenda, assuming a reconstruction of PH Government is formed, it will remain committed to implementing its corporate governance, to achieve the objectives of Shared Prosperity Vision 2030.”
Overall, as soon as the political uncertainty gets resolved and stabilises, the implementation of institutional reforms could provide long term sustainability of private investments, which the economy needed to support the well-being of the country.”
Meanwhile, Public Investment Bank said given the current political equation could still change as it appears that no sides hold a clear majority in Parliament, domestic investors are likely to adopt a holding pattern, waiting on important key initiatives to help drive the economy of its current stupor made worse by the coronavirus outbreak.
Foreign investors are likely to exit the market first, on added concerns that their interests may not likely be at the forefront of considerations.
“In the interim, however, the market will throw up trading opportunities until the dust fully settles. Stocks hammered in the aftermath of yesterday’s sell-down could bounce back fairly quickly.”
As of mid-day break on 12.30pm, the FBM KLCI was up 10.67 points to 1,500.73 backed by institutional investors as well as optimism on the resolution to the country’s latest political turmoil.
Key index holders, Maybank and Sime Darby Plantation are linked to Permodalan Nasional Bhd, one of the largest fund management companies in Malaysia; while Tenaga Nasional, Sime Darby Plantation, CIMB, IHH and Axiata are linked to sovereign wealth fund Khazanah Nasional had all rebounded. ― Bernama
