Malaysia election: Surprise Pakatan Harapan win will not disrupt economic growth

Supporters of former Malaysian prime minister Mahathir Mohamad and opposition candidate for Pakatan Harapan are seen outside the hotel where he held a news conference, in Petaling Jaya, Malaysia on May 10, 2018.
Supporters of former Malaysian prime minister Mahathir Mohamad and opposition candidate for Pakatan Harapan are seen outside the hotel where he held a news conference, in Petaling Jaya, Malaysia on May 10, 2018. PHOTO: REUTERS

KUALA LUMPUR (BERNAMA)  - The surprise victory of Pakatan Harapan (PH) in the 14th General Election will not disrupt Malaysia's growth as the country's strong economic fundamentals are intact and will be able to cushion any possible knee-jerk reaction, experts said.

They believe that any jolt to the stock or foreign exchange markets would only be temporary.

 

Judging from previous economic performances, Ramlan Pointon Consultants economic analyst Jorah Ramlan pointed out that several downturns in the economy are not due to internal matters but rather, external ones.

"Whoever is the government of the day, I can say that the economy has been progressing and will continue to grow. What we need is continuity and governance. To me, these are more important to ensure economic stability. They must understand. The fundamentals and factors for economic development should not be changed for popularity. Thus, I don't think the economy will decline," she told Bernama.

PH won the "mother of all elections" elegantly with former prime minister Mahathir Mohamad making a comeback to the political scene after 15 years by leading the new government after winning 121 (PKR - 104, DAP - 9, Warisan - 8) parliamentary seats against Barisan Nasional's (BN) 79 as at 4.40am on Thursday (May 10).

This marks a new chapter in Malaysia's political history as the previous ruling coalition, BN, had been in power since Independence.

In its manifesto, PH plans to raise minimum wages to RM1,500 (S$520.87) by the end of its term, with the government paying half of the pay hike, eliminate the debts of Federal Land Development Authority (Felda) settlers and provide one million affordable houses within 10 years.

The four-party coalition also wants to introduce the Employees' Provident Fund scheme for housewives with RM50 monthly contribution from the government plus 2 per cent salary contribution from husbands, and gradually abolish highway tolls.

Regardless of PH's ambitious plans, Dr Jorah urged the coalition to consider continuity of policies closely linked to the country's fundamentals, including trade, consumption, spending and foreign direct investments, in order to increase gross domestic product (GDP) figures.

On investor confidence, Hermana Capital chief executive and chief investment officer Nazri Khan Adam Khan said that in the near term, there would be a major reaction in the equity and foreign exchange markets, as they may fear if current policies in place will continue.

However, he expects the market to stabilise in two to three months after the new government takes over Putrajaya.

"There will be a shift in rotation from sector to sector, from BN-linked sectors, which are  mostly in hard infrastructure, construction and property, to soft-infrastructure sectors which are being championed by Pakatan, he added.

 
 
 
 

Meanwhile, HSBC Global Research, in its recent note, said PH's proposal to abolish the goods and services tax (GST) and to reintroduce some fuel subsidies for selected consumer groups within the first 100 days in office, posed a significant fiscal risk, in the absence of off-setting revenues.

As of 2017, GST provided for 21.3 per cent of the Malaysian government's revenue, compared with 13.1 per cent from total oil and gas-related income, it said in a note.

Prior to the GST, the sales and service tax (SST) provided only roughly 7.5 per cent of government revenue.

Without the incremental tax revenue from GST, the Malaysian government will run a deficit of 4.9 per cent of GDP in 2017 as opposed to 3 per cent.

"If these pledges are implemented, we will have to determine the potential size of increase in the fiscal deficit and government bond issuance," HSBC Global Research said.

Asian Strategy Leadership Institute chairman for the Centre of Policy Studies, Tan Sri Ramon Navaratnam, said there were many economic and financial strategies that could be adopted by PH without having to dwell mostly on the GST.

He said revenue could be raised from all kinds of other taxes, namely income, property gains and wealth taxes, among other things, to narrow income disparities.

The rising prices are not solely or even mainly due to the GST. After all, there are hundreds of goods that are exempted from GST.

The issue at hand is the inequilibrium between supply and demand of goods and services, he added.