Analysts See Greater Political, Macroeconomic Clarity for Malaysia After State Elections

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With the concluded state elections in Malaysia, analysts on Monday said they believe the administration of Malaysian Prime Minister Anwar Ibrahim now has ample room to deliver on its promised reform agenda.

In line with most research houses base case, the conclusion of the six state elections over the weekend showed the political status quo retained as the Anwar-led Pakatan Harapan-Barisan Nasional (PH-BN) coalition formed the governments in the West Coast states of Penang, Selangor and Negeri Sembilan.

RHB Research said in a note that it believes the outcome of the state elections offers the Anwar administration the political leeway to make good on its reform agenda.

According to the research house, these initiatives will need to include measures to rebalance the subsidy bill, improve the state of public sector finances, introduce political reform, attract new foreign investment, improve competitiveness and drive the next phase of growth.

“Effective public messaging, managing market expectations and steady execution of the reform agenda will be critical,” it said.

UOB KayHian also said in a note that with the uncertainty of the state elections ended and political stability ensured until the next general elections, it anticipated a notable acceleration in the implementation of crucial economic reforms in Malaysia.

According to the research house, these reforms are expected to encompass subsidy rationalization to a greater extent, strategic investments to facilitate the transition towards renewable energy, diversification of the government’s revenue sources, and enhancements to the social welfare safety net for the lower-income segments through direct cash transfers funded by surpluses arising from the subsidy rationalization.

It also noted the rollout of the impactful economic initiatives or policies embraced by Anwar’s Madani economic framework, such as the National Energy Transition Roadmap, loosening of Malaysia My Second Home (MM2H) requirements, and the proposed Malaysia-Singapore special economic zone in Johor.

Kenanga Research also said in a note that it is mildly positive on the outcomes of the just-concluded state elections in Malaysia as it did not result in a change in the balance of power in the Southeast Asian country.

With the unity government’s grip on Selangor, Penang and Negeri Sembilan remaining intact, the research house believes Anwar will continue to muster support from the existing partners of the unity government.

Also, having crossed the key final hurdle, it believes the unity government will expedite its policy initiatives, particularly, subsidy rationalization and tax reform, that will address the long-standing concern of investors over the long-term fiscal sustainability of the nation.