Malaysia' prime minister, Mahathir Mohammad submits his resignation and quits his party - Photo Privacy

JAKARTA (TheInsiderStories) –  Mahathir bin Mohamad’s party has won the Malaysian election in a shock result and beat the incumbent leader Najib Razak. Pakatan Harapan (PH), an alliance of opposition parties spearheaded by the former prime minister had defeated Razak’s Barisan Nasional coalition.

The 92-year-old Mohamad, who had retired 2003 after leading Barisan Nasional governments for 22 years, says he intends become the new prime minister before handing over the role to former Razak’s enemy Anwar Ibrahim.

The duo capitalized on public disenchantment over the cost of living and a multibillion-dollar scandal that has dogged Razak since 2015. In a televised address, Mohamad emphasized will immediately to form a government cause is currently there is no government of Malaysia.   

Commenting on the Malaysian election, Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit said the victory of the opposition PH led by Mohamad has swept the United Malays National Organisation-led Barisan Nasional out of office for the first time since Malaysia achieved independence.

The Election Commission has confirmed that the opposition coalition has secured sufficient seats for a parliamentary majority, with Mohammad’s PH having won 113 seats and its political ally Parti Warisan Sabah having won 8 seats. The party has won sufficient seats for a simple majority in the Malaysian parliament, which has 222 seats.

The opposition had promised that May 10 and 11 would be public holidays if they won the election, and the Chief Secretary of the Malaysian government has duly proclaimed this, so the Malaysian stock market will therefore be closed till the end of this week.

Initial financial markets reaction in offshore currency markets signaled a knee-jerk sell-off in the ringgit, which moved from 3.95 on May 8 to 4.0461 on the one-month non-deliverable forward rate immediately after the election results were announced.

The Malaysian economy grew at a rapid pace of 5.9% in 2017, helped by a boom in global electronics demand, which provided a boost to Malaysian exports of electrical and electronics exports.

The upturn in world oil prices since August 2017 is also helping a rebound in Malaysia’s oil and gas sector, which had been hit by the slump in world oil prices during 2015-16.

IHS Markit forecasts that the Malaysian economy will grow at 5.5% in 2018, helped by continued strong manufacturing exports and the upturn in the oil and gas sector.

One of the key economic policies announced by PH in its election manifesto was to remove the goods and services tax (GST), which was introduced in April 2015 at a rate of 6 percent, and replace it with the previous sales and services tax within 100 days of taking office.

The GST has played an important role in stabilizing Malaysian fiscal revenue since 2014 when the collapse in world oil prices reduced government oil and gas related revenues.

The politician has also indicated that higher corporate taxes may be considered to help plug the revenue gap from abolishing the GST. He has promised to review major infrastructure projects planned by the previous government, including the 55 billion-ringgit East Coast Rail Link project, with the possibility of investing in upgrading road infrastructure rather than proceeding with a costly rail infrastructure project.

The former premier had also indicated in 2017 that if his party won office, the planned High Speed Rail project between Singapore and Malaysia would also be reviewed. The new premier has signaled that he intends stay as Prime Minister for only two years and plans to step down after that and hand over power to Ibrahim.

Mohamad has long experience as Prime Minister of Malaysia for a period of 22 years from 1981 until 2003. During his previous tenure as premier, he guided the transformation of the Malaysian economy away from excessive dependence on commodities exports through an economic transformation program that boosted the development of the manufacturing export economy, making the nation one of East Asia’s fast-growing tiger economies.

His economic policies when the Malaysian economy was engulfed by the East Asian crisis were initially criticized by analysts and economists in international financial markets, but he avoided resorting to an IMF bailout and Malaysia’s economic policies during the East Asian crisis later won widespread acclaim from many other developing countries. Malaysia staged a rapid and successful economic recovery from the East Asian crisis, with the outstanding Malaysian central bank governor Zeti Aziz overseeing far-reaching financial sector reform and consolidation that has considerably strengthened the Malaysian financial sector.

Meanwhile, Aberdeen Standard Investments Malaysia Chief Executive Officer Gerald Ambrose said it’s a new political dawn for Malaysia, which may see its first ever change of government since its independence from the British in 1957.

He stated, this was a stunning election outcome that few would have predicted. Ambrose expected some market volatility from the election result and possibly some spillover impact on investments.

He gave an example, larger companies in Malaysia, many of which are government-linked, will bear the brunt of any index-linked selling which might take place in the near term.

“More broadly, some of PH election pledges may have diverging impacts on the share prices of specific sectors over the short term. PH’s intention to review all infrastructure mega-projects may lead to some initial selling in the construction and cement sectors, while its agenda to mitigate high living costs may enhance consumer sector stocks, such as food manufacturers, consumer staples and retail plays,” he said.

Over the medium to longer term, Ambrose believed the election outcome reflects a growing level of political maturity and respect for democracy that would be beneficial for the country’s appeal to foreign investors and economic prospects.