Research firm: Political instability to weigh down economy
Business research firm Fitch Solutions expects power to change hands often in the next decade causing political and policy uncertainty that will weigh down the economy and reforms in Malaysia.
In a report today, Fitch Solutions said the political instability had manifested in the fall of the Pakatan Harapan-led administration in February.
Business research firm Fitch Solutions expects power to change hands often in the next decade causing political and policy uncertainty that will weigh down the economy and reforms in Malaysia.
In a report today, Fitch Solutions said the political instability had manifested in the fall of the Pakatan Harapan-led administration in February.
"While a successful transition to a more stable multi-party or two-party system present in more mature democracies could eventually reap dividends for Malaysia, the uncertainty in the interim is likely to be a negative factor counted against it by potential investors.
"This is inopportune, given that businesses and countries around the world are accelerating plans to move all or at least part of their operations out of China in a bid to build more diversified and resilient supply chains as an answer to the liabilities of relying too much on China.
"Malaysia would essentially be starting on the back foot against regional competitors, especially Vietnam, in the race to attract foreign direct investment," read the report.
Fitch Solutions said politicians were expected to become more populist, introduce more protectionist measures and were more likely to turn to graft to secure support.
"Heads of coalitions could resort to political patronage to ensure the loyalty of their constituent parties.
"This could lead to bloated governments with more ministerial positions created for the sake of handing them out to coalition MPs and the appointment of backbench MPs to key positions in government-linked companies," it added.
These political factors would likely make the country unattractive to investors.
With less investment flowing into Malaysia, the research firm predicted that Malaysia's economy would grow at 3.4 percent on average over the next 10 years until 2029.
Apart from politics, Fitch Solutions said other factors weighing down growth include slow population growth, brain drain as skilled non-bumiputeras continue to venture abroad, high household debt and low fiscal space.
Fitch Solutions estimated that the debt to gross domestic product (GDP) ratio, including government-guaranteed debt, was more than 80 percent of GDP and steadily growing.
"The inability of the government to mount a strong (economic) response to the Covid-19 pandemic in 2020 indicates that this constraint is already a binding one and will likely remain so over the coming decade.
"Furthermore, populist appeals to the population is likely to include regular cash handouts over the coming years, which would further limit available resources to support the economy during leaner times.
"This increased vulnerability to negative economic shocks will likely weigh on average growth over the coming decade," it added.
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