Finance Minister retains post, but faces key test with federal budget

KUALA LUMPUR • Malaysian Finance Minister Tengku Zafrul Aziz, who retained his post in the new government announced yesterday by Prime Minister Ismail Sabri Yaakob, has his work cut out for him.

In October, Datuk Seri Zafrul is set to unveil the 2022 federal budget to what may be the most divided Parliament in Malaysia's history. That budget will need to address an economy weakened by protracted lockdowns and a raging Covid-19 outbreak, amid steep financial constraints and a budget deficit target that has already been revised higher twice this year.

At stake is the fate of the days-old administration he just joined: Per convention, Datuk Seri Ismail would need to resign if the budget fails to get majority support in Parliament.

Ratings companies will also be watching keenly for any departure from the country's fiscal consolidation path.

The decision to retain Mr Zafrul as finance minister "should be welcomed by the market", said Mr Wellian Wiranto, an economist at OCBC Bank. "He is known as a technocrat by and large, and his reappointment signals continuity in his role in carrying out the ongoing fiscal plans and to shepherd the new budget through the Parliament."

The ringgit rose 0.1 per cent to 4.1930 per US dollar after the Cabinet announcement. The yield on the benchmark 10-year government bond dropped two basis points to 3.24 per cent.

Mr Zafrul, 48, has more than a year's experience as finance minister in the previous government. The decision to bring him back points to a desire for policy continuity from the previous Muhyiddin Yassin administration.

Earlier this month, he affirmed the central bank's 2021 growth forecast for Malaysia at 3 per cent to 4 per cent, the second downward revision as the country grapples with protracted lockdowns and virus flare-ups.

The outlook is expected to improve in the fourth quarter due to more sectors reopening and increased vaccination coverage, said Mr Zafrul on Aug 13. "The government's current priority is to protect lives from the threat of Covid-19 and ensure the country's economic growth prospects remain strong in the medium to longer term," he said in his statement then.

Government efforts will be guided by the National Recovery Plan - an evolving blueprint for the country to exit the pandemic - and underpinned by the principles of prudent financial management, he added.

Mr Zafrul was chief executive of CIMB Group Holdings before Tan Sri Muhyiddin picked him last year for the finance portfolio. He spent much of his career climbing the ranks at CIMB, becoming CEO in 2015. He previously worked at Citigroup Malaysia, Credit Agricole Group and local broker Kenanga Holdings. He holds a master's degree in economics and accounting from the University of Bristol and a bachelor's degree in finance from the University of Exeter.

Mr Zafrul will likely spearhead efforts to raise the debt ceiling from 60 per cent of gross domestic product now to perhaps 65 per cent, said Mr Wiranto. That would "give the government more wiggle room in pushing through a loose fiscal stance in the midst of economic challenges", as well as prepare the ground for an election that must be held by July 2023.

The appointment shows the compromise Mr Ismail had to make in forming Malaysia's third Cabinet since the 2018 election. The Prime Minister commands the support of just 114 of 220 lawmakers, and the slim majority may be put to the test in a confidence motion when Parliament reconvenes in two weeks.

While he is not a member of any political party, Mr Zafrul is affiliated with Mr Muhyiddin's Perikatan Nasional coalition, which counts nearly half of the lawmakers backing Mr Ismail.

"The continuity is positive, but the generally poor performance of the previous government means that the overall Cabinet line-up is important," said Mr Alvin Tan, head of Asia currency strategy at RBC Capital Markets in Hong Kong. "After all, Malaysia's No. 1 policy goal right now is to contain the pandemic."

In the previous government, Mr Zafrul also served as coordinating minister for the National Recovery Plan. In that role, he changed thresholds for easing states' virus curbs, helping to advance economic reopening in some areas.

Still, the opposition warned against relaxing restrictions too early, given the uneven pace of vaccination and the spread of the more infectious Delta variant.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on August 28, 2021, with the headline 'Finance Minister retains post, but faces key test with federal budget'. Subscribe