• Pakatan Harapan (PH) defeated the incumbent Barisan Nasional (BN) in the 14th General election
• There could be some risk of volatility in the markets in the short term
• Fulfilling election pledges may raise fiscal deficit • What does Pakatan win mean for currency policy?
• Malaysia’s economy to remain strong after GE14

In a stunning result that made political history, the Pakatan Harapan (PH) coalition crossed the minimum threshold of 112 seats needed to form Malaysia's new government. This was a historic win by the Opposition alliance and is the first time the country will witness a change of government since its independence from the British in 1957.

Former premier Tun Dr Mahathir Mohamed, also Malaysia’s longest-serving Prime Minister of 22 years, had sworn in as the 7th Prime Minister of Malaysia while Datuk Seri Dr Wan Azizah has been appointed Deputy Prime Minister. As for the new cabinet, there will likely be balanced distribution between the parties that are aligned to PH.

This is a surprise to the market which had anticipated a BN win. On top of this, the country has not witnessed any change in government prior to this. This will likely lead to uncertainties in the short term and questions may arise on the stability of the new government. In the long term, the new government will be positive for the market, if it takes step to improve institutional and political reforms.

PH had previously promised scrapping GST, undertaking management buyouts of selected government owned companies and reviewing Chinese investments. The coalition has pledged to abolish the GST in their first 100 days of government.

For the incoming government, key economic concerns of the people that need to be addressed include the rise in cost of living, transparency and governance. The incoming ruling coalition has promised fiscal reforms in the first 100 days in office to focus on federal budget and finances, asset-liability management and government debt obligations. This includes review of all major public projects especially those financed outside of the development project and related contingent liabilities, operating expenditure, ensure government procurement by open tender, improve accountability of state-owned enterprises and other public assets. The incoming ruling coalition’s manifesto highlights plans to review mega projects but the only project that is not part of the reform agenda is the Pan Borneo Highway projects (Sarawak and Sabah) as completion of these projects will be prioritised. The incoming ruling coalition has also promised to abolish the GST and revert to Sales and Services Tax (SST), as well as provide targeted fuel subsidies. They also aim to plug the gap in revenue by trimming wastage in government expenditure

The extent to which the new government's agenda will shift major policy is uncertain, but the PH victory and its policy platform indicate a much greater potential for change. In the meantime, we will monitor the new government's policy agenda as it evolves.

Source: BIMB Securities Research - 14 May 2018