The 15th General Election and Malaysia’s Economy

The parliament was dissolved on the 10th of October, three days after the annual federal budget was tabled by Finance Minister Tengku Zafrul. This paved the way for the General Election to take place on the 19th of November. Given the challenges of the rising cost of living and a gloomy outlook in the global economy, what are the top challenges the next prime minister has to solve to bring Malaysia over this onerous and uncertain period?

A shopper watches a live broadcast of Malaysian Prime Minister Ismail Sabri Yaakob announcing the dissolution of parliament

Source: (NIKKEI Asia, 2022)

Challenges Malaysia is facing

1. Depreciating currency

Since the rate hike, cycle began in the US, Malaysian Ringgit has seen tremendous downward pressure resulting in a depreciation of roughly 14% against the US dollar in the past 12 months. This means our imports are getting more expensive and hence adding to the already heightened cost of living in Malaysia. We might have begun to witness the effects on the food we buy, also in part due to the high inflation. From raw materials such as flour for Gardenia bread to the Ben & Jerry’s ice cream we buy in grocery stores, which will not escape the pressure to raise prices.

100 Malaysian Ringgit bill on a stack of 1 Rnggit bills

Source: (The Malaysian Reserve, 2022)

2. Budget deficit & unsustainable subsidies

Although the debate for the Budget 2023 has been held back due to the dissolution of parliament, we may expect to see another budget with higher expenditure than revenue, as was the case that Malaysia has been on a budget deficit since 1998. Due to increasing inflationary pressure, the government’s spending on subsidies has far exceeded its initial allocation. Finance minister Tengku Zafrul has acknowledged that the current subsidy mechanism is unsustainable. However, if essential goods such as oil, petroleum and certain consumer staples aren’t subsidized, the inflation rate in Malaysia can easily rise to be around 11% (Free Malaysia Today, 2022). While overspending its budget, the government faces threats of potentially lower tax revenue as 50% of its revenue comes from direct taxes, which are susceptible to the gloomy economic outlook and a potential recession (Shanmugam, 2022).

3. Political stability & corruption

Malaysia experiences a continuous decline in the corruption index rankings, suggesting insufficient enforcement to trim down corruption cases. Linking with corruption is cronyism. Usually, the purchases and construction of infrastructures by the government will be done through open tender or competitive bidding to search for the lowest-cost suppliers. Instead, cronyism involves giving important government projects and contracts to friends or relatives of those in power, such as political leaders. Such actions create a leakage of public funds when it should be in areas such as providing quality education or social reforms.

Source:(Palanisamy and Palanisamy, 2022)

Adding to the challenges is the uncertainty in Malaysia’s political climate, having witnessed 3 prime ministers in office since the last general election. Political instability may shake foreign investors' confidence to invest funds in such a landscape. The fluctuating and inconsistent policies may discourage foreign investors and hence complicate the recovery of the Malaysian economy from the pain induced by the pandemic (BIRRUNTHA, 2022). On the bright side, the recently passed Undi18 initiative will allow us to expect an influx of young voters in the GE15. If first-time voters can make their way through the complicated and chaotic political situation and accurately make their voices heard by casting their valuable votes, we should expect a major shift in the political landscape of Malaysia which symbolises a strong step in building a more mature democracy in the nation.

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About the Author

Khor Zher is a first year Economics student at the University of Nottingham Malaysia. He is passionate and dedicated to research and writing on topics related to Economics & Finance.

References

• BIRRUNTHA, S. (2022). Malaysia needs political stability for economic recovery. [online] The Malaysian Reserve. Available at: https://themalaysianreserve.com/2022/06/15/malaysia-needs-political-stability-for-economic-recovery/ [Accessed 11 Nov. 2022].

• CNA. (2022). Key issues as Malaysia prepares to vote. [online] Available at: https://www.channelnewsasia.com/asia/key-issues-malaysia-general-election-economy-political-stability-3016831 [Accessed 6 Nov. 2022].

• Free Malaysia Today. (2022). Inflation could reach 11% without subsidies, says Tengku Zafrul. [online] Available at: https://www.freemalaysiatoday.com/category/nation/2022/08/05/inflation-could-reach-11-without-subsidies-says-tengku-zafrul/ [Accessed 6 Nov. 2022].

• NIKKEI Asia (2022). Malaysia PM dissolves parliament, paving way for election. [online] Nikkei Asia. Available at: https://asia.nikkei.com/Politics/Malaysia-election/Malaysia-PM-dissolves-parliament-paving-way-for-election [Accessed 18 Nov. 2022].

• Palanisamy, P.R. and Palanisamy, P.R. (2022). The downfall of Sri Lanka’s Rajapaksa clan: A genesis of cronyism and nepotism. [online] Focus Malaysia. Available at: https://focusmalaysia.my/the-downfall-of-sri-lankas-rajapaksa-clan-a-genesis-of-cronyism-and-nepotism/ [Accessed 18 Nov. 2022].

• Shanmugam, M. (2022). Alternative Views: The general election and the ringgit. [online] The Edge Markets. Available at: https://www.theedgemarkets.com/article/alternative-views-general-election-and-ringgit [Accessed 6 Nov. 2022].

• The Malaysian Reserve (2022). Ringgit to strengthen to 4.10 against US dollar by year-end – Kenanga Research. [online] The Malaysian Reserve. Available at: https://themalaysianreserve.com/2022/04/08/ringgit-to-strengthen-to-4-10-against-us-dollar-by-year-end-kenanga-research/.