Malaysia’s election this week may be shaping up as the closest one ever, but economists don’t think the outcome will matter much either way.
The May 9 election has pitted the incumbent Najib Razak against his one-time mentor, 92-year-old former Prime Minister Mahathir Mohamad. Mahathir, who was prime minister from 1981 to 2003, has said he’s eschewed the ruling party and joined the opposition solely because of what he sees as corruption in the current government.
Najib has been ensnared in a long-running scandal over Malaysian state fund 1MDB. As much as US$4.5 billion is believed to have been misappropriated from the fund, sparking money-laundering probes in at least six countries. Malaysia’s Attorney General’s office, however, has previously disputed that there was evidence of misappropriated funds. Najib was the chairman of the fund’s advisory board until 2016. He has repeatedly denied wrongdoing.
But economists don’t think either candidate will bring much long-term improvement.
“The election is unlikely to do anything to solve the many long-term challenges facing Malaysia, and could even make things worse,” Capital Economics said in a note last week.
For one, there’s not likely to be much improvement on the corruption front, it said.
“A few years ago, Najib was accused of embezzling hundreds of millions of dollars from the state investment fund, 1MBD. That Najib was not only able to keep his job but looks set to win re-election does not inspire confidence that the issue is being taken seriously,” it said.
Additionally, Mahathir isn’t likely to advance much on that front either, it said.
“Corruption was, after all, rife while he was prime minister, and it seems unlikely that he would be able to tackle the broader system of corruption and patronage that ties the political system together,” the note said. It added, however, that Mahathir has made some encouraging promises, such as pledging to investigate 1MDB and to introduce a two-term limit for prime ministers.
Malaysia ranked 62 out of 180 nations in Transparency International’s 2017 Corruption Perceptions Index. Another key challenge ahead is bringing down Malaysia’s government debt, which at around 54 percent of gross domestic product is among the region’s highest, Capital Economics said.
But here again, it noted that neither candidate has much of an advantage.
“With Najib promising to almost double cash handouts to low-income households and Mahathir pledging to scrap the Goods and Services Tax, the budget deficit is likely to widen this year,” the note said. “Once the election is out of the way, however, the government is likely to want to get fiscal consolidation back on track, which would imply a sharp tightening of fiscal policy in 2019.”
Capital Economics also noted that neither candidate was likely to address Malaysia’s “affirmative action” system, which gives privileges to ethnic Malays, who are the majority of the population. The system “damages the economy by preventing the most able from rising to the top,” the note said, adding that many minority groups already head to Singapore or other regional countries to study or start businesses.
Indeed, many ethnic minorities can struggle to study math and science in public schools as those subjects are taught in the Malay language, reversing a Mahathir era effort to teach them in English.
Najib, who relies on ethnic Malays as a voter base, has no incentive to end the system and Mahathir did little to reform it while in power and hasn’t mentioned it on the campaign trail, the note said.
Capital Economics said that without serious reforms, Malaysia’s long-term outlook wasn’t likely to improve, with trend growth to remain around 4.5 percent on-year, well below the around 6-7 percent that Taiwan and South Korea reached when they had similar levels of GDP per capita as Malaysia’s currently.
Not all analysts expect a budget explosion post-election. In a note this week, Nomura said that monthly fiscal data from the central bank showed a fiscal deficit of just 11.2 billion ringgit for the first quarter, or just 3.3 percent of GDP for the first quarter, the smallest first-quarter deficit in five years.
Nomura said that was likely due to a surge in revenue collection and restrained spending, despite the upcoming general election.
“While we continue to expect government spending to spike in the second quarter, the surprising outturn in the first quarter suggests fiscal tightening in the second half may be less severe than we currently forecast,” it said.
Other analysts also noted that Malaysia’s economic fundamentals have improved.
“Beyond the election and political uncertainties, Malaysia has made significant progress over the year in terms of ensuring growth stability and fiscal sustainability,” DBS said in a note this week.
But it added that implementing economic transformation strategies and continuing progressive policies would be crucial to the longer-term outlook. DBS expected the country’s current economic fundamentals would work in the ruling party’s favor in the election.
Indeed, Najib has remained the odds-on favorite to win the election. That was in part due to accusations of gerrymandering and to other government moves that have left the opposition crying dirty pool.
The gerrymandering means that Najib’s coalition may not need to win a majority of votes. In the 2013 election, the ruling coalition failed to win a majority of the popular vote, but still won the majority of the seats in parliament.
Other moves have also left the opposition crying foul. Last month, Malaysia’s registrar of societies temporarily disbanded Mahathir’s political party, alleging it had failed to provide necessary documents. Additionally, much of Malaysia’s media is state-owned, making it easier for the government to control messaging.
Police have also reportedly launched an investigation of Mahathir under a controversial new law aimed at “fake news” after the former prime minister alleged a private jet he was set to use had been sabotaged. The law has faced harsh criticism from rights groups, which fear it is aimed at silencing opposition.
There are some signs that the election may still be hard fought.
A survey conducted by the independent Merdeka Center over the April 28-May1 period found that the ruling Barisan Nasional coalition has lost around 8 percentage points of Malay support in Peninsular Malaysia, the most populous part of the country, compared with during the 2013 election.
But the survey added that the loss of support was mitigated by a split opposition vote and the ruling coalition could still maintain its lead.
Other parts of the survey were more difficult to read. For example, it found that the 1MDB case and allegations against Najib didn’t even make the top six issues for voters nationally, although “weakness of the leadership” and corruption did.
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