Malaysia’s 14th general election, to be held on May 9, has the potential to cause significant shifts in the country’s political dynamics. Though there are multiple possible scenarios for the upcoming election, they can be simplified to two broad outcomes that are key to evaluating the policy impacts following the election.
Scenario 1: Barisan Nasional (BN), the current ruling party, maintains control over the parliament (likelihood: 75%)
In this scenario, BN secures more than the 112 seats required to form the government and continues to stay in power.
With its position secure, BN will continue to implement existing policies and pursue only marginal changes, resulting in low levels of policy uncertainty. Hence, companies can expect a continued increase in Bumiputera-focused policies, a highly favorable outlook towards Chinese FDI, and a possible cut in corporate and personal income taxes. Companies are also likely to experience an incremental improvement in the business environment, though a lack of significant policy implementation in this field might result in Malaysia lagging behind its peers. On the downside, companies can also expect a continued rise in corruption and increased favoritism in the awarding of large infrastructure projects and state contracts.
If BN obtains less than the 133 seats it obtained in the general election in 2013, the incumbent Prime Minister Najib Razak’s position in the party might be weakened. Internal dissent against Najib due to the 1MDB corruption scandal combined with his weak performance in the election might then result in him being replaced by another member of his political party. However, the policy impact of Najib being replaced is likely to be largely similar to that of Najib maintaining power.
Scenario 2: Pakatan Harapan (PH), the main opposition party, obtains a control over the parliament (likelihood: 25%)
In this scenario, PH secures the required majority in the parliament to win the election and Mahathir bin Mohamad, Prime Minister of Malaysia from 1981 to 2003 and PH’s nominee for the 2018 election, becomes Prime Minister.
The election of PH would result in significant policy uncertainty in the medium-term as PH is expected to implement a slew of policies to differentiate itself from previous administrations. Some of the proposed policies include a removal of the Goods and Services Tax, a review of all large-scale infrastructure projects developed by foreign companies, and an introduction of fuel subsidies for the low-income population. However, the implementation of these policies will depend on the size of the majority that PH is able to secure in the parliament and on how Mahathir aims to prioritize these policies.
If PH comes into power, companies can also expect downward pressure on the Malaysian ringgit due to significant policy uncertainty in the short term and an expected increase in the fiscal deficit in the long-term. Hence, MNCs importing into Malaysia might experience an increase in import costs, while MNCs exporting from Malaysia are likely to benefit from their products becoming more competitive in global markets.
Political uncertainly would be further exacerbated if Anwar Ibrahim, leader of the opposition between 2008 and 2015, is pardoned by the Malaysian monarch and replaces Mahathir as Prime Minister in a period of 1-2 years. This is due to the uncertainty regarding his policy priorities and how they might differ from Mahathir’s policies.
In sum, due to the significantly higher likelihood of BN staying in power, companies can expect policy continuity and a continued increase in corruption levels. Nevertheless, executives would be wise to pressure test their strategic plans in the case of a PH victory, as Mahathir’s policies are likely to impact businesses through various channels and drive a depreciation of the Malaysian ringgit.