April 25, 2023

Malaysia’s Political Outlook April 25, 2023 Following the completion of Anwar government’s first 100 days in office, we invited James Chin, Professor of Asian Studies at the University of Tasmania and an authority on government affairs in Southeast Asia, to share his views on the stability of the government and Malaysia’s political outlook. This Insight summarises key takeaways from the discussion with Asia Management Forum and Asia Management Forum Global members, along with further analysis and commentary from our Research team. Key takeaways + Anwar’s government has had a good start. But weak support from Malay voters could lead to Anwar’s fall unless his Pakatan Harapan (PH) coalition gains stronger Malay support in six state elections by July-August this year.+ If Anwar fails to win over the Malay voters, then the opposition Perikatan Nasional (PN) coalition is likely to win the next general election, with a prominent place for the strict Islamist party PAS. That would not bode well for non-halal industries (movie theatres, alcoholic beverages, etc). The labour market would also suffer, as PAS is opposed to foreign workers and women working in factories.+ Until a stable government is in place, the economic outlook will continue to be hurt by political uncertainties. We expect consumer spending and capex growth to stay sub-par over the medium-term, which will pull down overall GDP growth to 2.7% in 2023 and an average 4.2% over 2024-26. That compares with 5.8%pa for the decade to 2019. Malaysia’s ethnic politics & election math Malaysia’s political complexity comes down to two points: 1. Malays were 51% of the population in 2015 (ranging from 40- 90% in states on the peninsula) with any stable government needing the support of a majority of Malays, and 2. All Malays are Muslim, and conservative Islam is a rising force within the Malay community, which roughly divides at present into a rural and conservative group and an urban and progressive group. The rest of the Malaysian community is made up of indigenous people in the east Malaysian states of Sabah and Sarawak (12% and collectively grouped with Malays as “Bumiputra”, which means son of the land), Chinese (21%, a steadily falling percentage), Indians (6%), and non-citizens who are mostly migrant workers (10%). For three decades to 2018, political stability was delivered by the Barisan Nasional (BN), a broad coalition that included the main parties for the main ethnic groups. The United Malays National Organization (UMNO) led BN, and collected most of the Malay votes, with the help of extensive payments to key Malay voting groups (such as rubber growers) via the government budget and informal funds flowing through UMNO. In the 2018 election, voters threw BN out of office after UMNO’s informal funds flow became a spectacular river of corruption – including 1MDB – under PM Najib Razak. Coalitions and parties fragmented in the 2018 election with the turmoil continuing as three Prime Ministers (Mahathir, Muhyiddin, and Ismail) each briefly attempted and failed to form stable governments. The 2022 election brought a major realignment. UMNO crashed to 26 seats from 54 in 2018 and 88 in 2013. The BN coalition it leads fell to 30 seats from 79 in 2018 and 133 in 2013. Part of BN’s fall was due to a split in UMNO, with Bersatu (Malaysian United Indigenous Party) created in 2017 and taking 13 seats in 2018 and 31 seats in 2022. Meanwhile, the Islamic-based PAS surged to 43 seats (making it the largest single party in parliament) from 18 in 2018 and 21 in 2013. Given the dramatic realignment in parties in 2022, Anwar did well in forming a coalition of 148 out of a total 222 seats (66.7%) to win a confidence vote in December 2022 with support from his own PH coalition (82 seats), UMNO and the remnant of the BN coalition (30 seats), GPS (a coalition from Sarawak, 23 seats), GRS (a coalition from Sabah, 6 seats), and seven others. Anwar’s PH coalition draws its support from five parties mostly representing urban middle-class Malays, Chinese, and Indians. The Sabah and Sarawak supporters in GPS and GRS while technically “bumiputra” are not Malays. UMNO and the remnant BN do represent Malays but are just 30 seats. Add to that the Malay party inside the Anwar’s PH coalition (People’s Justice Party, 31 seats) and you get to 61 seats representing the Malay community in Anwar’s government. Bersatu and PAS in the PN coalition are the opposition with 74 all Malay seats. So, PM Anwar leads a reformist, multi-ethnic government, which despite holding two-thirds of the seats in parliament does not represent the majority of Malays. Anwar’s government is not secure In his first 100 days, Anwar has scored an approval rating of 68% (reflecting his popularity among the non-Malay communities, as well as progressive Malays), survived a confidence vote in parliament with a two-thirds majority, and tabled a well-received 2023 budget as the finance minister. He continues to enjoy strong support from UMNO, as well as the current King. But the true test for his government lies ahead. The upcoming elections in the six states of Selangor, Penang, Negri Sembilan, Kelantan, Terengganu, and Kedah will be crucial in determining Anwar’s legitimacy in terms of having Malay support. The last three states are the Malay heartland states and are currently governed by the Islamic opposition party PAS. PAS also controls Perlis but it has no election this year. The four states – sometimes called the PAS belt – are rural, poor, 90%+ Malay, and a PAS stronghold thanks to decades of building Islamic schools. Several have also adopted stricter application of sharia law than other Malaysian states. PAS should easily hold them in the 2022 state elections although PM Anwar hopes to woo their voters with cash transfers in the budget paid to the bottom 20% of the national population. The bigger issue is whether PAS and Bersatu can make inroads into the wealthier, urban states of Selangor, Penang, and Negri Sembilan. Bersatu may be held