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Malaysia 2023 State Election – Will it jeopardize the stability of our economy?

With this challenges to the ruling alliances, does this actually will affect or even jeopardize the stability of our economy as a whole?

Article contribution by Akmal SK (Corporate Lawyer | Serial Entrepreneurs)

Picture credit: EFE/EPA/FAZRY ISMAIL

The Malaysian State Election has been held on 12th August 2023 for the states of Selangor, Negeri Sembilan, Penang, Kedah, Kelantan and Terengganu. The results is actually not suprising, where we saw the coalition between Pakatan Harapan (PH) and Barisan Nasional (BN) retain their power in three states (Selangor, Negeri Sembilan and Penang), while the opposition Perikatan Nasional (PN) kept control of the other three states (Kedah, Kelantan and Terengganu) with more than two-thirds majorities. What is surprising is that PN gained seats in the three PH strongholds and prevented the PH-BN coalition from retaining a two-thirds majority in Selangor.

A lot of parties, including the politicians themselves, political analysist and even economy analyst has said that immediate risks to the stability of Malaysia’s coalition government have eased in the wake of local elections in the six states. However, the results could add to strains within the ruling alliance over the longer term, as well as complicating fiscal consolidation efforts. With this challenges to the ruling alliances, does this actually will affect or even jeopardize the stability of our economy as a whole? Or will it produces more positive outcomes that would improve Malaysian economy?

Federal-State Relationship

Much of the attention of the result of the state election has been about the impact of our PMX mandate. But the status-quo results that we saw in the state election should poses no danger to the PMX at the federal level. It would however indicates that the federal-state ties are likely to stay prickly.

Over the last eight months since Datuk Seri Anwar Ibrahim came to power as PMX, ties between his unity government and the opposition-led states have been, we can say it as, hostile, with PAS accusing Putrajaya of holding back on federal funding for economic development. Very few analysts, if any, expect the situation to change now.

For a long time, political power in Malaysia has been largely centralised at the federal level. The few states governed by the opposition were regularly denied resources, both financial and central support for their economic programmes, such as the issues by Kelantan and Terengganu on the royalty payment from oil and gas extracted from the states. But things were shaken up after the 2018 general election when BN was ousted from power after ruling for six decades, starting a chain of events that pushed Malaysia into a prolonged period of political uncertainty. Power changed hands three times before the 2022 general election.

It also led to a shakeup in how elections were carried out. All states, except Sabah and Sarawak, traditionally synchronised their state assembly elections together with the national polls, but only three states did so in November 2022.

The current economic module, which has been used for a very long time, is very much dependent on Putrajaya, or the Federal Government, and this may have caused the relationship between the Federal and states government, which is controlled by the Opposition, suffered. We cannot deny that there will be bias from the Federal government to the states which it controlled, against the otherwise opposition controlled states.

It would be wise for the Federal government to give more flexibility to the state government to develop and create an economic module that would best reflect their own identity. The “one size fits all” module currently implemented may not be relevant anymore as each states are unique in its own way, and have its own strength, weakness and even resources.

Macroeconomy and Microeconomy

Many has said that, whatever the outcomes of the state election, it will not have any adverse impact on the Malaysian economy as a whole, as economy at the federal level is determined by macroeconomy factors.

It has also been said that now the state elections has passed, our PMX and the government can now focus on its agenda to improve the economy of our beloved nation. It is also said that this state elections result may help to stabilise the stock market and ringgit in the short term as investors perceive that there is now less economic policy uncertainty in the country.

From the status-quo results of the state elections, it is believed that this outcome will be sufficient to ensure the continuity of the coalition in the near term, but BN’s losses may aggravate underlying tensions between the coalition partners over the longer term.

The results may also further complicate the government’s fiscal consolidation efforts. Our PMX, in his EKONOMI MADANI Framework, has targeted a deficit of 3% of GDP or lower within 10 years, and the government has given many indications that it is looking to reform subsidy regimes to target them more efficiently.

However, from the short-term point of view, analyst from MIDF has projected that Malaysian GDP will shrink from 5.6% to 4.5% maximum, for the 2nd quarter of this year. They have also projected decrease in the performance of the country’s export, production and also retail trade performance. Thus, although the state elections has passed, and has provided a considerable relief on our PMX, he must now ensure that the unity government must continue do the right thing for the economy by implementing the necessary structural reform, and it should now be more focus than ever. With all this pressure still have to be shouldered by the federal government, especially on the PMX as the Prime Minister, it cannot be avoided that there may be some unpopular decisions to be made that will ultimately affect the economy as a whole. Any decision made on the macro level, will also bear an effect on the micro level.

What Impact Do State Elections Have Anyway?

Issues over political stability continue to plague Malaysia’s economic outlook. Economic tensions are also more keenly felt as the opposition-held states lag economically. In 2022, the gross domestic product per capita in Kedah, Kelantan and Terengganu were markedly lower than that in Negeri Sembilan, Selangor and Penang.

With the economy and costs of living issues top of mind, what are the roles of the federal and state governments in tackling them?

The opposition led by PAS has attacked the current government for failing to address cost of living issues faced by ordinary Malaysians. PMX has been responding aggressively in the run-up to the state elections. His PH-led government has been announcing pledges to improve the flagging economies of the PAS-controlled states, arguing the party has failed to meld strong economic management with its lofty religious agenda.

However, with several U-turn that was made by PMX on a few decisions, such as on the issue of subsidy of chicken and eggs, and also to end the JPA scholarship of 3 healthcare courses, this kind of conduct surely does not help. PMX himself said that “If flip-flopping benefits the people, I will flip-flop”. But, does this means that the initial decision made to stop the subsidy, or to end the JPA scholarship, which has been announced, were made based on half-cooked discussion and analysis? Shouldn’t such kind of decision be made upon a very detail scrutiny by all the experts in the government in the first place?

If this flip-flopping behavior is involved in more serious and global matters, it will definitely project some kind of instability of the Malaysian government, and also the PMX himself, in the eyes of foreign investor. Although, to be fair, those U-turn may be made in expecting the PRN ahead in their mind, but the whole decision making conduct by the Government under the PMX might send the wrong image to the world. This kind of behavior projected thus far, can likely impact the Malaysian economy as it will hinder all those foreign investors to invest in the country.


As a businessman myself, and also being part of a political organization, I do acknowledge that it is actually hard to lead a unity government. Time has change, especially since 2018. The whole political scenario in Malaysia has changed, and we have been under political uncertainty since then.

It is not like the past time, where when we talk about politics and political party, its just Barisan Nasional and the opposition, where Barisan Nasional has always have two-third majority in the Government. Now, everything is grey. There is no more black and white as before. Thus, this uncertainty has, in one way or another, lead to the instability of our economy. And it has been felt all the way to the bottom.

Hence, for me, as a unity government, this elected government must work together, really hard, to ensure the stability of our economy. Keyword here is FOCUS. The PRN has passed, so now all the elected government, either at the state level, or the federal level, must all work together to bring reformity and stability to the Malaysian economy. And they have to do it MATURELY! No more playing favours. Each state should be treated fairly by the federal government. This is a Unity Government, and thus, all the elected government and leaders should unite, regardless of their political parties.


Disclaimer: The views and opinions expressed in this article are those of the writer and do not necessarily reflect the views or positions of GC


Reference :

i) https://www.thestar.com.my/news/nation/2023/06/14/u-turns-okaywhen-they-are-warranted

ii) https://www.freemalaysiatoday.com/category/nation/2023/06/09/govt-makes-u-turn-subsidiesfor-eggs-chickens-to-remain/

iii) https://www.channelnewsasia.com/commentary/malaysia-state-elections-governmenteconomy-power-3658281

iv) https://www.fitchratings.com/research/sovereigns/malaysia-local-election-outcomes-reducenear-term-political-risk-14-08-2023

v) https://www.nst.com.my/business/2023/08/942564/state-elections-anwars-government-avertswobble-bursa-malaysia-ringgi

About Akmal SK

Meet Muhamad Akmal Arif Shamsul Kahar (Akmal SK) - The Legal Mastermind Behind Corporate Law.

As the Leading Partner of Messrs. Akmal Shamsul Kahar & Co., Mr. Akmal has made a name for himself as a legal expert in corporate practice, IPO and Listing Public Companies,specializing in mergers and acquisitions, share sales, and other complex transactions.

With extensive experience in the field, Mr. Akmal has earned a reputation as a trusted advisor to many SMEs and big corporations, guiding them through million-dollar deals with ease. The legal firm led by En. Akmal boasts an impressive client list, including both local and international clients from countries such as the UK, Singapore, Dubai, China, and more.

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