(Bloomberg) — Malaysia’s governance risk has climbed and will likely stay elevated in the coming quarters as Prime Minister Anwar Ibrahim contends with political tensions, according to BMI, a Fitch Solutions company.
Signs of friction among the political parties that make up the ruling coalition may slow the pace of Anwar’s reform agenda, according to BMI. The research firm cited tensions over Trade Minister Zafrul Aziz’s potential switch from the United Malays National Organisation to the prime minister’s own party.
Malaysia’s governance risk score in BMI’s Political Risk Index has risen to 28.2 this month, from 27.5 a year ago, the firm said in a report Wednesday.
Any move by Zafrul risks fomenting discontent between UMNO and the People’s Justice Party, which set aside years of rivalry to form the government in 2022 after a hung parliament. Zafrul is a member of the UMNO Supreme Council, the party’s highest decision-making body, and news of his plans sparked criticism from his own party.
The alliance provided Malaysia with much-needed respite after a revolving door of leaders, allowing the Southeast Asian nation to spearhead economic development plans and attract global investors. Any turmoil could plunge the country into a fresh spate of political volatility.
Anwar’s government will also probably struggle to pass extensive anti-graft reforms, BMI said, adding that such efforts have, so far, been limited. The recent court reprieve for Deputy Prime Minister Ahmad Zahid Hamidi, president of UMNO, could heighten doubts about Anwar’s commitment to fighting corruption, it added.
Zahid scored a fresh legal victory in December when prosecutors abandoned their challenge against his graft acquittal. It came just a month after Malaysia’s High court dropped one 1MDB-related case against former Prime Minister Najib Razak, who remains influential in UMNO despite being behind bars.
Ongoing concerns surrounding the cost of living will also pose further headwind for Anwar’s government, according to BMI. Malaysia plans to cut subsidies for its cheapest and most popular gasoline by the middle of this year, freeing about 8 billion ringgit ($1.8 billion) a year for the government. BMI said it expects greater public dissatisfaction from the move, even though such reforms will be positive for the economy.
The government expects the inflationary impact from the subsidy reforms to be manageable amid measures to redistribute savings to the needy, Second Finance Minister Amir Hamzah Azizan said in an interview with Bloomberg Television’s Haslinda Amin on Wednesday.
“If you provide support in terms of cash transfers, providing two-tier pricing, providing interventions along that line, then we can manage the effects of it,” he said. “Inflationary elements will be contained.”
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