When Anwar Ibrahim took office as Prime Minister of Malaysia in November 2022, he won a mandate that faced the economic consequences of a global pandemic and long-standing structural deficiencies.
Anwar – described by The Economist as “the most enigmatic figure in Southeast Asian politics for part of a century” – inherited this challenge at a crucial time. Malaysia’s premature deindustrialization – in which the productive sector’s contribution to GDP and employment declines by a lower-than-expected source of income – has led to structural stagnation. The exodus of professional workers in search of greater opportunities has further depleted the national skill pool. These vulnerabilities have been exacerbated by systemic corruption and a developing national debt that has reached alarming points.
How did Anwar plan those urgent issues? To address budget deficits, he introduced a series of new taxes. These included a higher facilities tax and a capital gains tax, which are expected to generate profits for the government of around $728 million. Additionally, the Progressive Wage Policy (PWP) was implemented to align wage expansion with productivity, with the aim of combating wage stagnation and raising living standards. This policy was aimed at ensuring that as staff become more productive, their salaries increase accordingly, thereby improving their purchasing power and overall economic well-being.
On the tariff optimization front, Anwar’s leadership has taken on the difficult political task of rationalizing subsidies and managing prices for civil services. A vital step is the transition of new civil servants to an employee provident fund (EPF) scheme, which aims to reduce pension prices. in the long term. This resolution sought to alleviate the government’s monetary burden by moving long-term pension obligations to a more sustainable model.
In addition, the enactment of the Fiscal Responsibility and Public Finance Law (FRA) institutionalized prudent fiscal control with targets of a fiscal deficit of 3% and a debt-to-GDP ratio of 60%. This legislative framework aims to ensure that Malaysia’s fiscal policies remain sustainable in the long term, creating a strong and growth-friendly economic environment.
Efforts to generate investment have allowed the administration to speed up foreign direct investment (FDI) approvals and ease of doing business. Significant investments have been attracted in high-price-added sectors, such as semiconductor production and virtual technology. By concentrating on sectors with Malaysia, which has the greatest prospect of expansion and technological advancement, it aims to move up the global price chain and foster a more dynamic and competitive economy. Measures of investment quality focus on labour productivity through automation and increased spending on research and development. These projects aim to create a more innovation-driven economy, reducing reliance on low-skilled labor and improving overall productivity.
While these reforms have significant implications for both Malaysia and the broader Asian region, challenging situations remain. Recently, Malaysia’s attempt to redirect oil subsidies faced potential setbacks following the government’s significant defeat in state elections over the weekend. Sungai Bakap voters expressed discontent as the Islamist opposition party PAS on Saturday retained the rural seat in the northern state of Penang with a mammoth majority of 4,200 votes, despite a low turnout. stake. The defeat, fueled by the top life charge linked to other recent subsidy cuts, highlighted public dissatisfaction with Anwar’s economic policies.
The South China Morning Post reported that “Malaysia’s asymmetric recovery from the pandemic has led millions of personal sector employees to dip into their retirement savings to cover living expenses after adjustments to the country’s mandatory savings fund make it possible to withdraw billions of ringgits in a few weeks » As a result, Malaysia’s ruling coalition failed to secure a seat in the by-election in Anwar state. Party leaders attributed the biggest loss to rising fuel prices. According to the Electoral Commission, the federal opposition Perikatan Nasional alliance more than doubled its margin of victory in the state seat of Sungai Bakap, Penang.
However, while wasting the seat of state, Anwar’s coalition won a victory elsewhere. In the recent elections in Kuala Kubu Bharu, Anwar’s coalition Democratic Action Party (DAP) won with a majority of 3,869 votes, against 14,000 votes against Khairul Azhari. Saut, of the opposition coalition Perikatan Nasional (PN), who obtained 10,131 votes.
This highlights two sides of the story: on the one hand, discontent with expressed economic policies caused significant setbacks in some elections, while, on the other hand, successes in other elections suggest that Anwar’s coalition still holds very strong. extensive in other areas. The combined effects reflect Malaysia’s complex and changing political landscape.
These electoral effects underscore the delicate balance that Anwar’s administration will have to maintain between implementing mandatory economic reforms and managing public discontent. Although the arrival of new taxes, the rationalization of subsidies and investments in high value-added sectors are essential steps towards economic renewal, the effect they have on the population cannot be underestimated, specifically in terms of the cost of living. . Anwar’s ability to cope with such demanding situations will be very important in determining the long-term good fortune of his economic policy and, by extension, Malaysia’s economic future.
So, as Malaysia stands at a crossroads, the coming years will test not only Anwar’s political acumen but also the resilience of a country striving to regain its economic energy and global standing. The world is watching closely: Will Malaysia’s adventure set a precedent for other countries facing post-pandemic recoveries and structural transformations? The answer remains to be seen, but one thing is certain: Anwar’s leadership will be a decisive factor in this unfolding narrative.
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