Mahathir Mohamad secured a historic victory. What is in store for Malaysia?
Malaysia’s 14th general election was dubbed the “mother of all elections”. On polling day, it certainly felt like it, as nation headed to the polls to decide Malaysia’s future.
In a hotly contested contest, incumbent Barisan Nasional (BN) took 79 seats. The opposition coalition Pakatan Harapan (PH) swept to victory with 121 seats. The victory ended BN’s 61-year grip on power.
Prime Minister Najib Razak did all he could to throw the result of the elections into doubt. He allegedly offered opposition candidates US$6 million to switch sides. He also claimed newly elected Mahathir Mohamad was ineligible to lead the country. He argued that because no single party won a majority, the King would have to choose the Prime Minister. Mahathir announced he would form a government by Thursday evening.
What went wrong for Najib?
Going into the polls, it looked tight. There was barely daylight separating BN and PH. But on election day, BN lost key seats in its stronghold states. Johor fell under opposition control for the first time. PH also took seats from BN in Negeri Sembilan, and BN lost Terengganu to Parti Islam Se-Malaysia (PAS).
Najib haemorrhaged seats as the public used their votes to protest the rising cost of living. Under Najib Gross National Income (GNI) per capita had been tumbling since 2014.
He was also unable to shake off his involvement in the 1MDB corruption scandal. The scandal plagued Najib since 2015. More than $3.2 billion of public funds were embezzled. It was so extensive it sparked investigations in 10 jurisdictions around the world. Najib will likely face an investigation into how US$681 million reached his personal bank account.
The election has sent ripples through the markets
In response to Mahathir’s surprise win, Malaysian bonds fell. Stocks listed on the Singapore bourse with Malaysian exposure also took a hit. The Malaysian stock market will remain closed on Thursday and Friday. Capital Economics predicts a decline of 3% when the market opens. The Malaysian ringgit also fell by 4.3% against the dollar overnight.
Malaysia’s Central Bank will meet this week to discuss monetary policy. Unless there is further currency depreciation, it will likely leave rates unchanged.
What will Mahathir’s victory mean for the long term?
DBS anticipates an economic slowdown over the next couple of years. The bank expects Gross Domestic Product (GDP) growth to hit 5% for 2018. In 2017, Malaysia achieved GDP growth figures of 5.9%.
The first task at hand is to bring Malaysia’s debt under control. In 2017, federal government debt stood at RM700 billion (US$181 billion). However, there are indications this will increase in the coming months. Mahathir pledged to abolish the goods and services tax (GST) on the campaign trail. Although unpopular, it brought in 42 billion ringgit (US$10.5 billion) in receipts in 2017. Mahathir will likely tighten fiscal policy later to recover these losses.
On the campaign trail, Mahathir promised to revaluate expensive Chinese-backed infrastructure projects. He will likely keep the planned Kuala Lumpur-Singapore high-speed rail link. But Najib’s pet project, the US$55 billion East Coast Rail Link, could be shelved.
After the 1MDB scandal, Mahathir has the chance to clean up the Malaysian government. Mahathir admitted corruption last time he was in office. But he will be acutely aware of Najib’s 1MDB mistakes. A Mahathir-led anti-corruption drive would do much to restore Malaysia’s reputation abroad. This could have positive long-term effects on foreign investment into the country.
Will Mahathir step aside for Anwar?
Mahathir told voters that once elected, he would secure Anwar’s release. He said he would concede the Prime Minister’s office and allow Anwar Ibrahim to lead the country. But Mahathir will have two years in office first.
Anwar Ibrahim’s party, PKR, won the most seats in the PH coalition. PKR took 47 seats, five more than DAP. This would indicate that Anwar has the popular mandate to become Prime Minister.
However, two years is a long time in Malaysian politics. Mahathir and Anwar have had a particularly turbulent relationship. Mahathir sacked Anwar as his deputy when the pair were in office and put him on trial for corruption. Whether Mahathir will honour his pledge and step aside remains to be seen.
GE14 represents a historic day for Malaysia. Mahathir carries the weight of an exasperated but optimistic public on his shoulders. Hopefully his 92-year-old shoulders are broad enough to carry the burden of expectation.