On March 1, 2020, Muhyiddin Yassin was sworn in by the king as Malaysia's eighth prime minister amid a chorus of "betrayal", "double cross", "back door entry", "treachery" and others.
On March 9, Muhyiddin announced his cabinet line-up. It’s a set of old and new faces but projecting a Malay and Islamic-centric line-up nonetheless. This may not augur well for a multiracial Malaysia as her diversity is a comparative advantage in the eyes of investors.
Externally on the same day, international oil prices collapsed to below US$30 per barrel due to a supply disagreement between the Saudis and the Russians. This will have serious implications on Malaysia’s revenue as our 2020 budget is based on oil price hovering between US$62 per barrel.
In the meantime, our Covid-19 infection number has exceeded 100 and indications are that it will get worse before it gets better. As it is, the pandemic has already wreaked havoc on the country’s tourism industry scuttling the Visit Malaysia 2020 projected revenue. If the pandemic spreads to the manufacturing sector, which is highly likely, the country’s economy will be badly impacted as more than 20 percent of our GDP is generated by the manufacturing sector.
In a nutshell, Malaysia is possibly sailing into the perfect storm.
It is, therefore, a wise move by Muhyiddin to announce, as his first task after his appointment as the prime minister, the adoption of the economic stimulus package announced by Dr Mahathir Mohamad and the Budget 2020 tabled by Lim Guan Eng last year. These are, after all, initiatives he was a party to in the old cabinet.
It is now up to the newly minted Zafrul Aziz, the country’s new non-politician finance minister to take over and implement the economic plans as soon as possible. The task for him is a tough one though. It is very brave of him to take up this thankless job at this difficult time. We, as Malaysians, should give all the support he needs to tackle all these challenges.
For the new finance minister, the most immediate task is to shore up the financial market’s confidence in Malaysia. The growth rate of 3.6 percent for Q4 2019 is the slowest in years. With all the external headwinds, it is expected that Q1 2020 will be even worse.
The picture on foreign direct investment is not rosy either. By right, Malaysia with its advantages in diversity in its well-educated workforce, good infrastructure, being located in a natural disaster-free zone should stand her in good stead to attract a sizeable share of the investment fleeing the US/China trade war. Instead, according to report from United Nations Conference on Trade & Development (Unctad), Singapore, Indonesia, Vietnam, attracted most of the FDI in this region.
Malaysia is also being scrutinised closely by the rating agencies. Any downgrade will impact us negatively and jack up our cost of borrowing.
Our unstable political situation doesn’t help either. With a knife-edge majority and a coalition of political parties based on a narrow race and religion platform, the government will be under constant threat of falling apart.
The biggest threat of all, though it is still at a manageable level of just over 3%, is unemployment. The vulnerable sectors will be the services and the manufacturing sectors, the two sectors that will most likely take the brunt of the Covid-19 pandemic.
As the saying goes, when it rains, it pours. At the time of writing, the ringgit is 4.22 to the US dollar. While a cheap ringgit may be good for our exporters (provided the world economy remains robust and external demand remains strong), imported inflation can be a curse for Malaysians, especially the B40.
With all the headwinds, answer to the investors’ frequently asked question "Why invest in Malaysia" is becoming increasingly difficult to answer.
The writer, Lee Kah Choon is adjunct senior fellow, Penang Institute. - Mkini
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