Policy stability must hold amid political headwinds

 Political tides ebb and flow in Malaysia and cause excitement and concern in equal measure but the economy must be held on track whatever happens for everyone’s benefit.

Since taking office in late 2022, the unity government has delivered a remarkably resilient economic performance which can quite justifiably be described as excellent.

Despite persistent global uncertainty, Malaysia’s economy has consistently outperformed expectations and regional peers.

Gross domestic product (GDP) growth surged from 3.5% in 2023 to 5.1% in 2024 and 5.2% in 2025. That momentum carried through directly into 2026, with Q1 registering a robust 5.4% expansion and Q2 estimated to be 5.8%, giving 5.6% for the first six months.

This is tracking steadily within the target 4.5%–5.0% range set at the start of the year and is likely to come out above that estimate at the end of the year.

Crucially, this growth occurred while keeping headline inflation exceptionally well-managed, cooling from 2.5% in 2023 to 1.8% in 2024, 1.4% in 2025 and remaining at a modest 1.6% so far in 2026.

External trade figures tell an equally compelling story. Total trade hit records to surpass RM3.06 trillion in 2025, yielding a net trade surplus of RM151.8 billion and marking 28 consecutive years of trade surpluses.

High-value foreign direct investment (FDI) inflows saw a sharp resurgence, buoyed by major realisations in digital infrastructure, semiconductors and green energy.

Supported by these fundamentals, the ringgit appreciated by over 10% against the US Dollar in 2025 and has continued to outperform regional peers throughout 2026.

This strength was achieved despite major global shocks, including the disruption of the 2025 Trump tariffs and geopolitical volatility in the Middle East that pushed crude oil prices from around US$60 per barrel to over US$126 in April.

Most of the challenges that have hit the Malaysian economy have come from external developments entirely outside the control of domestic policymakers. However, the policy response which is within their control has been managed with commendable discipline.

When the Middle East conflict triggered global energy price spikes and fuel shortages across international markets, Malaysian households and businesses were deliberately shielded.

Strategic supply security and targeted price stabilisation ensured that petrol and diesel prices remained constant at the pump, preventing runaway cost-push inflation and maintaining economic momentum.

Now, however, the primary source of uncertainty threatens to shift from external markets to the domestic political arena.

Recent political realignments and state election outcomes in Johor and Negeri Sembilan have intensified political speculation, leading to mounting pressure on Prime Minister Anwar Ibrahim to consider an early general election.

While political pressures mount, bending to short-term political posturing would be an economic mistake. Economic policy management must remain anchored and steady.

The close alignment between the finance ministry (MoF) and Bank Negara Malaysia (BNM) on short-term macroeconomic stabilisation, alongside long-term structural reform plans driven by MoF, BNM and the economy ministry, has established a credible, high-performing economic baseline.

This track record is not a single party’s achievement, it is a clear, tangible outcome of coalition cooperation that all constituent parties in the unity government can rightfully claim as a joint success.

As attention turns toward the upcoming pre-election Budget 2027 in October, the priority for both domestic businesses and international investors is policy stability and predictability.

Investors do not want static policies but they do need policy continuity, combining short-term stability with agile, creative execution of long-term structural reforms like fiscal consolidation, subsidy rationalisation, industrial upgrading and strengthening social protection.

Even if the broader political climate becomes noisier and less predictable, keeping economic policy steady, pragmatic and reform-oriented must remain the government’s primary focus.

Political cycles are mostly temporary, but policy credibility takes many years to build and it is the one asset Malaysia cannot afford to compromise. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.