In San Francisco this month Malaysian prime minister Anwar Ibrahim was eagerly promoting his country, known as a south-east Asian manufacturing hub and major commodity exporter.
“Malaysia and Asean are the most stable and vibrant places to invest, and I look forward to meeting you individually in Malaysia,” he said at the APEC CEO Summit. “I think we are on the right track to propel the economy of our country in the next few years.”
But as his government marks its first anniversary this week, political observers say mounting challenges may pose hurdles for Anwar to achieve economic and fiscal reforms that are necessary to create a more robust environment for the country’s future growth.
Meeting representatives from tech giants such as Google, Microsoft and TikTok during the US trip, he expressed Malaysia’s commitment to providing a speedy approval process for all investors.
“Hopefully, the meeting with all these giant companies can bring benefits to the country and the people as a whole, God willing,” he wrote on Facebook.
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However, the domestic economy faces headwinds. The July-September gross domestic product data released this month showed exports declined 12 per cent from a year earlier, weighing on overall growth. Rising food prices and the falling ringgit, which hit a 25-year low against the dollar last month, have also affected many businesses and households.
Anwar, a longtime opposition symbol who is now 76 years old, became Malaysia’s 10th prime minister on November 24 last year after his Pakatan Harapan coalition won the general election that month. Forming a ruling coalition that he calls the “unity government”, he promised institutional and economic reforms.
Malaysia had been politically unstable for years. Anwar is the fifth prime minister in less than five years, after Najib Razak (2009-18), Mahathir Mohamad (2018-20), Muhyiddin Yassin (2020-21) and Ismail Sabri Yaakob (2021-22). As such, Anwar’s victory raised hopes for a period of stability and progress at a time when Malaysia was recovering from the pandemic.
“For the first time I see a prime minister that Malaysia can be proud of when he goes overseas,” said Kishan Buxani, a 26-year-old voter from Penang. “He raises the name of the country.”
Indeed, there was a sense of a breath of fresh air when Anwar first took office. The stock market rallied in the first few months, and the ringgit strengthened to 4.24 a dollar in February. According to the local pollster Merdeka Center, Anwar enjoyed an approval rating of 68 per cent that month.
However, Anwar’s first year has been a balancing act, with the prime minister grappling with economic woes, political tensions and the lingering effects of the pandemic while striving to deliver on his ambitious reform agenda.
The government has introduced the New Industrial Master Plan 2030, which includes a target of boosting the manufacturing sector’s gross domestic product by 6.5 per cent annually through 2030, and the National Energy Transition Roadmap, which seeks to restructure the economy, achieve sustainable growth and ensure an equitable distribution of wealth.
Statistics show some positive developments in his first year. The government received 132bn ringgits ($28bn) of direct investment in the first half of 2023, achieving 60 per cent of this year’s target of 220bn ringgits. According to the local think-tank MIDF Research, the unemployment rate maintained a post-pandemic low of 3.4 per cent in September, with youth unemployment falling to 10.6 per cent.
But Anwar’s government was not spared from the global economic downturn. The World Bank in October downgraded Malaysia’s economic growth for this year to 3.9 per cent from an earlier projection of 4.3 per cent, compared with 8.7 per cent in 2022 and the pre-pandemic years’ 4-5 per cent, citing a significant slowdown in external demand.
The ringgit is the worst-performing currency in the region this year, falling by more than 5 per cent against the dollar and hitting its lowest value in 25 years, at 4.792, on October 23. About 4.19bn ringgits flew out of the Malaysian equity market during the first half of 2023, according to MIDF Research.
“As an oil-exporting country, exposure to oil price shocks and vulnerability to sudden and sizeable capital outflows are the main factors that likely explain why the Malaysian ringgit stands apart” compared with other Asian currencies, the World Bank said in the October report. Economists said a widening interest rate gap with the US and the slowing economy of its key trading partner, China, were also among the factors in the ringgit’s depreciation.
Several business owners and small traders in Kuala Lumpur told Nikkei Asia that the weak ringgit had affected their supply of food items and other goods and increased overhead costs due to their dependence on imported goods, equipment and services, adding to the global inflation that has in turn affected Malaysia.
Wong Mee Fang, a 70-year-old owner of a vegetarian food stall in the city of Petaling Jaya, west of Kuala Lumpur, said the rising cost of rice and other materials had severely affected her business, forcing her to raise prices. The retail price of imported rice jumped 36 per cent in September, reflecting a global price surge.
“Business has been rather uncertain. It is more difficult for vegetarian food stalls like mine,” Wong told Nikkei Asia. “I know the government is trying [to address food inflation], but the rising food prices over the past year have affected many of us, especially small businesses like ours. I’m not sure how long I can continue.”
While these economic issues have caused dissatisfaction among Malaysians, Anwar is also feeling pressure on the political front.
Currently, he enjoys support from two-thirds of the members of the 222-seat lower house, including 147 from the ruling coalition and four opposition lawmakers who recently announced they would support his government.
But local elections held in six of the country’s 13 states in August resulted in a blow to the prime minister, with the ruling coalition losing about 30 per cent of its state assembly seats. The Islamist and right-leaning opposition party Perikatan Nasional increased its inroads into his coalition’s strongholds.
Bridget Welsh, an honorary research associate at the University of Nottingham Asia Research Institute Malaysia, explained that the outcome of the state elections highlighted his weakness among Malay voters and placed his government at risk of losing its non-Muslim base that voted for tolerance and moderation.
“Few recognise him as a reformer, and even fewer see a commitment to reform in his first year,” Welsh said, adding that the current political stability was achieved at the cost of any meaningful reform and a betrayal of trust. The country’s authorities in September dropped corruption charges against Ahmad Zahid Hamidi, the deputy prime minister and leader of a key partner in the ruling coalition, which raised questions over Anwar’s pledge to fight corruption.
“Anwar was supported for what people believed to be statesmanlike leadership and the hope for a clear vision of governance for the country. Neither have yet to materialise. A focus on trying to look good personally rather than actually laying out a clear program and governing has hurt Anwar’s government performance,” Welsh added.
Anwar’s government did introduce several reforms, including the repeal of the mandatory death penalty, decriminalisation of suicide attempts, and rationalisation of government agencies and departments to improve efficiency.
Anwar, who doubles as the finance minister, last month vowed his commitment to fiscal reforms. “Hence, reforms need to be implemented, notwithstanding that it may be an arduous and challenging process,” he said in his speech for the 2024 draft budget, referring to expanding the revenue base, implementing targeted subsidies and eradicating corruption and malpractice.
As his government enters its second year, Anwar must start delivering on his promises more, said James Chin, a professor in Asia studies at the University of Tasmania.
“A lot of people don’t believe that he can do it, and that is why you can see the fall of the ringgit and you see the stock market is restless,” he said. “He has to put in policies that will pay off in one or two years’ time. So time is running out for him.”
A version of this article was first published by Nikkei Asia on November 21. ©2023 Nikkei Inc. All rights reserved.