KUALA LUMPUR (April 6): Fitch Solutions Country Risk and Industry Research has maintained its Short-Term Political Risk Index (STPRI) score for Malaysia at 72.9 (out of 100).

In a report on Wednesday (April 5), the firm said while risks to policy continuity have diminished following the smooth transition to the Pakatan Harapan (PH)-led coalition government, it continues to anticipate challenges to policymaking.

“The unity government comprises multiple parties with diverse ideologies, which could lead to policy gridlock and slow momentum on reforms,” it said.

Fitch Solutions said it continues to see possible challenges in policymaking over the coming quarters.

The firm said policymaking in Malaysia has been relatively unencumbered since the new PH-led coalition government came into power in December 2022.

“However, it remains to be seen if the Datuk Seri Anwar Ibrahim-led government, which is still in its early days of the five-year tenure, will be able to formulate and implement reforms on more politically contentious matters as effectively as the previous Barisan Nasional (BN) government led by former prime minister Datuk Seri Najib Razak before [it was] defeated in the 2018 general elections.

“Accordingly, we are keeping Malaysia’s STPRI score unchanged at 72.9 (out of 100) for now, which is still lower than the score of 75.6 back in April 2018,” it said.

Fitch Solutions said the smooth passage of the country’s Budget 2023 is insufficient to demonstrate that the policymaking process in Malaysia has improved significantly under the new government.

It said Anwar, who also holds the position of finance minister, announced a RM386.1 billion budget on Feb 24, and that the budget was subsequently passed at the policy stage with a majority voice vote on March 9.

“However, the premise of the 2023 budget is similar to the previous budget announced in October by the previous government led by Datuk Seri Ismail Sabri Yaakob.

“Crucially, the budget did not introduce any major fiscal or tax reforms which could be viewed as politically or socially contentious.

“For instance, the government did not reinstate the goods and services tax (GST) which was abolished in 2018. In fact Anwar told the Parliament on March 14 that the government has no intention to reintroduce GST within the next six to 12 months,” it said.

Fitch Solutions said there are nascent signs that the unity government, which comprises multiple parties, could face future policy gridlocks due to ideological differences.

The firm said it believes that race-based considerations will likely continue to guide policies in Malaysia, even though PH had previously routinely disavowed ethnic preferential policies, in favour of need-based policies.

“The upcoming state elections will see PH and Malaysia’s opposition Perikatan Nasional (PN) contest in six states. PH currently holds Selangor, Negeri Sembilan and Penang, while Kelantan, Terengganu and Kedah, which are predominantly poorer Malay states, fall under PN’s leadership.

“A clear victory by the PN could put pressure on the coalition government to implement more pro-Malay policies in order to shore up support among this core group,” it said.