Fitch Says Early Elections And A Strong UMNO Win Is Good For Malaysia Economy

Posted on March 18, 2022

Fitch Solutions Country Risk and Industry Research anticipates early general elections in Malaysia, and expect them to be held most likely in the second half of 2022 (2H2022), well ahead of the July 2023 deadline.

In a report on Wednesday (March 16), the firm said this decision follows another decisive victory for the Barisan Nasional coalition, led by the United Malays National Organisation (UMNO), in the Johor state election on March 12.

Fitch Solutions said if UMNO increases its seat count, this would improve policymaking in Malaysia, although there would still be risks to this from an internal schism within the party.

It said the bloc will likely want to capitalise on this in order to regain its former dominant position in Malaysian politics.

The Malaysian government is currently made up of a group of UMNO, Parti Pribumi Bersatu Malaysia (Bersatu) and Parti Islam Se-Malaysia (PAS), though they are not a proper coalition.

“Against this backdrop, we see a somewhat less favourable few months ahead for the policymaking process, as the government’s attention is likely to be focused on campaigning, but there is potential upside for the medium term if BN manages to secure a stronger majority and forms the next government.

“This would potentially put an end to the series of unstable governments with thin majorities that have stalled the political process since 2020,” it said.

Fitch Solutions said it had therefore revised the Short-Term Political Risk Index score for Malaysia to 64.4 out of 100, from 65.2 previously to reflect the short-term risks, with the “policymaking process” component dipping to 48.7 from 51.2.

“Once the election has passed, we may revise the score to reflect the new political dynamics,” it said.

Fitch Solutions said the increasing prospects of an early general election could undermine the policymaking process in Malaysia over the coming months as policymakers turn their attention to the upcoming election.

“However, if elections were to be called soon, we believe that UMNO and its BN coalition would be able to form a government with a stronger majority, which would be positive for the policymaking process thereafter.

“BN only [holds] 41 seats (UMNO holds 37) in Parliament currently, depending on its partners in government to make up the 115 seats (out of 222) the government holds,” it said.

Fitch Solutions said the main obstacle to holding early elections appears to be the ongoing wave of Covid-19 infections, which has averaged around 30,000 cases since March 7, the highest levels so far since the pandemic began.

It said while the UMNO-led government appears to be finalising plans for an early election, the timing will likely be determined by when the Covid-19 wave begins to subside.

“This [suggests] that general elections will likely be called sometime in 2H2022, with 3Q2022 being the most likely window in our view,” it said.

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Fitch Says Early Elections And A Strong UMNO Win Is Good For Malaysia Economy

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