Malaysia Leader Faces Crucial Political Test in Budget Gamble

Malaysian Prime Minister Muhyiddin Yassin’s first eight months in power have been marked by political turmoil and a raging pandemic. His fate now hinges on his commitment to helping the country’s economically vulnerable.

Hit by the virus-induced downturn, voters like Zawiyah Yaacob will be watching the first budget presented by Muhyiddin’s government Friday for more financial aid and measures to revive economic growth.

Malaysia Leader Faces Crucial Political Test in Budget Gamble

“The previous government under Najib Razak was generous in giving out aid, but this Perikatan Nasional coalition government is a bit stingy,” said the 56-year-old Zawiyah, who makes less than $5 every few days doing odd jobs in the northern state of Kelantan.

Malaysia Leader Faces Crucial Political Test in Budget Gamble

Muhyiddin needs to placate ethnic Malays such as Zawiyah, who make up about half the population and are among the nation’s poorest, before a general election that’s possible as soon as next year. In the shorter term, Muhyiddin risks a de facto no-confidence vote if lawmakers fail to approve his budget in the coming weeks.

“There will be announcements to ensure the people, especially lower-income groups, are given aid,” said Awang Azman Awang Pawi, an associate professor at University Malaya in Kuala Lumpur. “The 2021 budget is the preparatory budget facing elections at any time.”

Policy Support

Malaysia has rolled out some $73 billion of stimulus, including handouts, to boost a $365 billion economy that slid into recession in the second quarter. A new wave of Covid-19 cases in recent weeks has led to fresh curbs on movement across several states, and risks stunting a nascent recovery.

The central bank left its policy interest rate at a record low Tuesday, warning of ongoing risks from the pandemic. It also affirmed a previous forecast that the economy will contract 3.5% to 5.5% this year.

The fiscal deficit for 2021 is likely to be around 90 billion ringgit ($21.7 billion), or about 6% of gross domestic product, Malayan Banking Bhd. economists wrote in an Oct. 30 report. That compares with an estimate for this year at 6.7% of GDP.

The budget will boost development spending to create a multiplier effect, Finance Minister Tengku Zafrul Abdul Aziz told the New Straits Times on Wednesday.

What Bloomberg Economics Says...

“Budget 2021 is likely to be supportive of Malaysia’s recovery, with government spending aimed at underpinning vulnerable businesses and households. While oil income may pick up in the second half of 2021, any recovery in tax revenues is likely to be sluggish. This suggests another outsize budget deficit.”

-- Tamara Mast Henderson, Asean economist

For the full note, click here

Widening inequality had already worsened the economic situation for ethnic Malays before the virus struck. The income gap between ethnic Chinese, who make up about 23% of the population, and indigenous groups known as Bumiputeras, which includes Malays, expanded almost fourfold from 1989 to 2016, according to a government report in October 2019.

Malay Vote

That helps explain why Nana, who owns a graphic design business in Kuala Lumpur, will support a government that “prioritizes Malay rights.”

“We’re getting more jobs now that the full lockdown is lifted, but they’re coming in slowly and there are challenges,” said the 31-year old, who wanted to be identified only by her first name. “There’s always this fear that we’d have to close down the company.”

The Malay vote will be crucial in the next general election. Last month, Muhyiddin said he’d personally take charge of matters related to Bumiputeras, the poorest group in Malaysia’s multiracial population.

A report from state news agency Bernama this week cited the premier saying the ruling alliance hopes to get a fresh mandate through a general election, with a vote possible once issues linked to the pandemic and economic recovery are resolved.

As the election looms, the main Malay parties “will present themselves as safe pairs of warm hands, always ready to catch and even lift the welfare of the Malays, and capable of showering them with handouts,” said Oh Ei Sun, a senior fellow at the Singapore Institute of International Affairs.

©2020 Bloomberg L.P.

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