Malaysia's new leader, Anwar Ibrahim faces a bulging in tray as he starts his term as the country's 10th prime minister. Can he tackle domestic rice bowl issues? Keep international investors happy and keep his unity government on an even keel. I'm don Tan from the money mine team and this is five things you need to know about Malaysia's post election economic agenda.
My guest today, Karim Qasim analyst at the Institute of Strategic and International Studies Malaysia, Haykel Rasanen, deputy Managing Director of Bower Group, Asia and Julia go senior economist at U. A. B.
Malaysia,
investors had a nervous few days but there was a boost to the ring it and Malaysian markets
as Mr Anwar's
appointment was confirmed. Kareem, do you expect this optimism to continue?
Markets generally are reacting quite well from the news due to the inclusion of a more socially moderate and business friendly coalition that's forming the government. Overall Kl Ci index is actually risen by 4% which is a three month high main industries here are actually industrial and industrial services, consumer goods, utilities, and plantation stocks. So this generally is indicative of more confidence in consumption led sectors.
So this could also be reflective of certain honeymoon period, if you will, of confidence in the new Malaysian leadership as opposed to the alternative of an ultra religious and ideologically driven government, which would have less political and social freedoms. The ingredients for a rally in the ringgit and Malaysian
equities are already present. So going forward, I think from an economic viewpoint, the government will still remain pro business and provide adequate protection for local industries and companies and may not deviate too far from the status poll,
Mr Anwar has said that tackling the rising cost of living will be his
biggest concern. What
sort of policies can we expect from the new government was very quick to announce that this is not a ph government, this is a unity government, I think most, because he wants to look at it from the perspective of not having tied to a manifesto of the party or any parties whatsoever, but more a broad strokes of addressing key economic concerns that he has, that he thinks the people have. So, I think in general, there are two broad economic policies
that we can expect from this unity government. The first is addressing the dual challenge of packing the rising cost of living, were also practicing fiscal discipline, which is something he touched on in his address to the Civil Service. The second broad economic policy, I believe, is the decentralization of economic autonomy to states particularly that of Sabah and Sarawak in east Malaysia. It's because of the inclusion of the regional coalitions of
which is GPS and Sabah in the unity government. And we think this will result in this revitalized efforts to kind of renegotiate the Malaysia agreement, 1963 give autonomy to the states to tip the balance in favor of Saba and Saba.
We can expect people friendly policies. This will help reorient and redistribute wealth towards the low and middle income earners. So when we look at Harapan manifesto and they're published agendas before the election, there was a heavy emphasis on social welfare for the elderly, youth and small business owners.
This also overlaps with certain policy proposals from various international who, among other policies, they also propose to provide a basic income assistance to the very bottom percentile of earners to ensure that every family in Malaysia has a household income above the poverty rate. It's likely we will see some form of this basic income for the poor and more policies to x span social safety nets and attempts to address the vulnerabilities
of marginalized communities. I do not rule out the possibility of keeping the current subsidy regime with minor tweaks to make it more targeted. So this is to ensure that there is a better take up of these subsidies among the very poor, at least for the next year.
On day three after his appointment as prime Minister, he chaired a special meeting with several senior government officials, including the Central Bank Governor, Ministry of Finance and Agriculture Ministry and the aim was to resolve a key economic issue which is addressing the rising cost of living. Some measures that have been mentioned include targeting food cartels, given the
recent issue of X supplies. Another meal measure that was mentioned is to implement targeted subsidies and this is to ensure that the benefits are channeled to lower income groups versus the current structure whereby everyone, regardless of income groups enjoys the subsidy. The way we see it is that the risk to implementing targeted subsidies in the near term in particular fuel subsidies is that retail
prices of fuel would rise. One sub these are removed and this would have a direct and indirect effect to prices of a broader range of goods and services. Now, for the average Malaysian household fuel is the single largest sub component in their consumption basket, and the average Malaysian household spends 8.5% of their household income
on patrol. So raising fuel prices will have an immediate direct effect on household wallets, including the middle income earners and businesses faced with higher transport costs are likely to pass it on to consumers. And that's how we would see the past through to a broader price increase, that would tell inflation risk higher in the near term and stretch the issue of an already high cost of living, does Mr Anwar's pakatan Harapan, or ph have enough support to push its agenda
through though
Julia, the Unity Government appears to have the two thirds majority support from other partners, given that the other parties also prioritize tackling higher cost of living, I think they would be supportive of this agenda given it is to help the people. But the question remains, is how they will do it. And as I said, if you reduce subsidies, it could risk inflicting more cost pressures
in the near term and heightened cost of living. So the timing to which the remove subsidies is very important to get not only the support from the coalition partners but also the public support because they are new government and the somewhat fragile coalition whereby no party commands a simple majority, the new government comprises parties with many different ideologies. Is that going to be a drag on decision making.
Anwar in the short term may need to play the balancing act here between the different political and personal interests of the various parties and mps. So this will be difficult knowing that Anwar also repeatedly announces intention to reduce the size of the government to make it a more lean and streamlined outfit with the parliamentary budget office to manage expenditures. So this will be actually very good for spending, rationalization, fiscal
consolidation and reducing bureaucratic burdens. This is something that has not been done before, but because this new government is eager to pass this through, I think it will be a very good move. But one of the down sciences that Anwar has less of a pie to distribute among his supporters in parliament. So that very delicate juggling game is necessary at least in the short term. But with that being said, I'm also a bit concerned that an expansion of social welfare and income
distribution measures could also translate to higher government expenditures. So something that could also raise the eyebrows of many ratings agencies and investors right? So it's going to go against a lot of their manifesto pledges to consolidate and reduce fiscal expenditure. Despite this alliance between strange bedfellows and a diverse composition of the government. The current Unity Government is generally more resilient, I think, than the majority that th held in 2018
because of the anti party hopping act. So this will eliminate any sudden switching of political allegiances, for example, like during the Sheraton move. But I am also a little bit more skeptical on whether ph can push their entire pre G 15 agenda. PH is generally seen as more progressive and liberal, while B. M. Is seen as more moderate in their approach. So for a consistent
and stable government, both sides have to seek consultation. So this means compromise and prioritizing on the kinds of reform they want to push
through, but that's quite a long list for Mr Anwar to tackle the top of the agenda tackling inflation, But he'll have to juggle any targeted subsidies and welfare nets with reining in government expenditure and keeping the peace with partners in the unity government. That could also mean decentralization of economic autonomy to states, especially Sabah and Sarawak in eastern Malaysia, a cost of living aside what will be Mr Anwar's biggest economic challenges as we head into 2023
cost of living Malaysia is relatively low compared to many similar countries in other parts of the world. So the real problem here is not so much cost of living as it is on stagnating wages, wages in Malaysia especially for young graduates and new graduates have remained quite low and when we factor into account the impact of inflation, it may have actually even declined over
for the past 20 years. So the increase of wages is more important in this case because higher wage individuals tend to spend less as a proportion of their income on necessities and they tend to spend more on luxury goods and more discretionary items, which means that they can actually absorb short term increases in the price level of daily necessities. Short term fixes in this case will include some form of cash
transfer to the board and subsidies on necessities. So this is in the short term and good thing but with higher global inflation this does not sort of provide a long term structural solving to the problem, This needs a lot more structural reforms to actually bring about higher wages that we want to see in the Malaysian economy.
One of the biggest challenges is to ensure stable growth next year. Given rising external headwinds to date, private consumption has been the key driver of growth contributing close to 80% of G. D. P. and going into next year. We expect exports to slow further alongside weaker global demand consumption is also likely to moderate unless we see China speeding
up easing of its restrictions. So I think that challenge for the new government is also to unite the people by addressing underlying issues including low incomes, widening income gaps, which you know, you just can't rely on cash handouts because that's not a permanent solution. There's probably other policies that need to be looked at, including a more holistic education, better job opportunities, ensuring that policies are pragmatic to keep Malaysia on the radar to attract investors.
Then of course, there are also other reforms that they should look at, including tackling fiscal weaknesses, improving governance and addressing corruption. As with all other countries. The other major economic challenge to Malaysia next year is mostly external in nature. I think as a small open and export oriented economy, we are exposed to two possible external shocks in the global economy. Right?
So the first is the anticipated slowdown in 2023, expected to dampen demand for several of our key exports, like electric and electronic products and oil and gas products. So the global economic slowdown will then also be compounded by other challenges faced by global supply chains, including prolonged war in Ukraine and china's continued dynamic zero Covid policy which we expect to continue well into 2023. This is
the first challenge. The second major one is there's also a persistent threat of this U. S. And china breaking into economic blocs as geopolitical tensions between these two superpowers escalate. So these tensions have have an impact on Malaysia as us and china are among Malaysia's largest trading partner. I think Singapore is third in that list. Fortunately I think we have taken some
proactive measures to mitigate the risk. Parts of which is diversifying our trading partners you know through free trade deals such as the or regional Comprehensive Economic Partnership and the C. P. T. P. P. As well which will help Malaysia increases access to other regional markets. So this is some of the things that they've put in place before. I think we have also been intensifying efforts to digitalize businesses so this will help us move that global value
chain and increase that productivity of the workforce. So challenges are there and I think Malaysia has some stability there in terms of whatever they propose before but undeniable that it will be a hard year. Where should Malaysian investors zero in in 2020
three.
So the outlook in 2023 is dimmer but we always encourage businesses with vision and long term strategies to look beyond just the next year. And the government is likely to continue promoting high value added industries that bringing technology expertise and higher incomes for the people.
So sectors that leverage on the supply chain diversification and expansion in the region, projects that increase digitalization efforts to reduce costs and raise efficiency and this can cut across many areas in services and manufacturing from business services to F and B robotics and engine.
One other area is the promotion of agriculture and food production for food security reasons and also managing food inflation and last but not least would be areas that promote sustainability and push the climate agenda to help the country reach its net zero goal by 2050,
assuming that many of the expansionary measures in budget 2023 are kept like the 2% decrease among middle income earners, cash transfers for low income households and investment incentives in E. S. G. Such as electric vehicles. So this will have positive spillovers in other sectors of the economy like FNB retail transportation auto manufacturers who will likely sort of shift their production capability towards the
electric vehicles. So sectors that also promote the adoption of E. S. G. And S. D. G. Principles among smes will also form a much more visible part of the economy. E. V. S is actually something very much worthwhile to look at. We're seeing a lot of very high intake levels in advanced economies, especially as climate change becomes more and more apparent.
So coupled with the fact that Malaysia's auto industry is very much foreign investor lead, we will see a continued level of interest in mid level manufacturing for electric vehicles in Malaysia, the electric vehicle uptake is actually less than one E. V. Per 1000 people. So when we compare this to say Norway where the same statistic is about 81 electric vehicles per 1000 people definitely I think there is room to grow
here in the Malaysian market. It's just that in the past, certain policy the hangovers have spilled over which in a way incentivize internal combustion engines over electric vehicles especially or import tariffs as well. So I think with the new government there is this sense that they will follow through on policy changes necessary to adopt electric vehicles. So I think the potential for E. V. S in Malaysia is definitely there and I think this is something that investors can look forward to.
Anwar Ibrahim is the 5th Prime Minister of Malaysia in five years. Is there optimism that the game of political musical chairs is now ending Julia? I think there is cautious optimism and
hope given
that Malaysia was able to cross the recent political hurdles. However, uncertainties remain as it is a fragile coalition bound by an anti party hopping law. Politics in Malaysia is about personalities, internal party fragmentation and social and economic structure of the country. So I think for the new prime minister, he has to find a common ground to unite the parties for the sake of political stability and longevity to last a full term.
And only with that they can then forge and pass supportive economic
policies.
Less so compared to let's say 12 months ago, let's say the near term risk of political instability is with the formation of a unity government or more accurately a grand coalition government right is purported to states majority in the parliament lower house and as a testament, today's Anwar has pledged to seek vote of confidence when parliament convinced on december 19th, we understand that and chairman, for example, has promised his coalition support, but
we have not heard the same from GPS Right Sabba as well as the regional Parti Warisan. So they haven't made a similar pledge. So this threat of political instability still looms over this unity government as it's kind of an alliance that is built on the basis of the king's decree.
So the main push factor that I see is that the continuance of this alliance that I see is that political parties, they do not want to be perceived as going against the king switches, which is basically to achieve political stability with the proposal for a unity government to be formed. And then we also look at what pakatan Harapan embarrass the nation has to do. Being longstanding political adversaries is unprecedented. Yet to be tested. It's inherently volatile. There are many
moving parts that make it hold. So this is a test of leadership on on wall managing this expectation, building up mutual trust between the component coalition parties, a juggling act on all fronts for Malaysia's new prime minister. One focus for 2023 is likely to be stable growth, but mr Anwar will have to hold his unity government
together to push ahead with economic policies. A big challenge is the cost of living, but again, he'll have to balance any subsidies and welfare initiatives with keeping government expenditure in line the unity government means that we're also likely to see changes in the relationship between the federal government and individual states with more decentralization of economic autonomy, particularly in the kingmaker states of Sabah and Sarawak in East Malaysia.
Looking forward, the focus is on promising sectors like digitalization, food security, supply chain diversification and sustainability, and that's five things you need to know about Malaysia's post election economic agenda. My guest today, Michael Rossman, deputy
managing director of Bower Group, Asia. Karim Qasim, analyst at the Institute of Strategic and International Studies Malaysia and Julia go senior economist at U O B Malaysia catch money mind on C N. A. And online at me, Watch CNN ASIA and Youtube.