Asian Economist

Kok Peng Chan

Macroeconomics

<ul>
<li>BNM’s heavy reliance on FX forwards created $29 billion in off-balance sheet liabilities, masking true reserve strength and exposing future repayment risks if inflows weaken.</li>
<li>This is further compounded by a narrowing current account surplus, while capital outflows and rising foreign currency deposits reflect persistent financial account weakness, undermining long-term support for the ringgit.</li>
<li>While China is Malaysia’s largest trade partner, the U.S. is the main source of trade surpluses. Worryingly, the U.S. recently imposed a 19% tariff, threatening this critical surplus engine.</li>
</ul>


BNM’s heavy reliance on FX forwards created $29 billion in off-balance sheet liabilities, masking true reserve strength and exposing future repayment risks if inflows weaken.
This is further compounded by a narrowing current account surplus, while capital outflows and rising foreign currency deposits reflect persistent financial account weakness, undermining long-term support for the ringgit.
While China is Malaysia’s largest trade partner, the U.S. is the main source of trade surpluses. Worryingly, the U.S. recently imposed a 19% tariff, threatening this critical surplus engine.


Asia Economist and CEO, Centennial Asia Advisors

Manu Bhaskaran

Asia Economist and CEO

Centennial Asia Advisors

At Centennial Asia Advisors, we tell it like it is. We have no vested interests, no need for a China wall, and no reason to skew our outlook any other way. With over 30 years experience covering Asia’s political economy, you can be sure our conclusions and analyses are based on the unadulterated facts. Through years of fine-tuning our research methodologies, we deliver a quality of macroeconomic analysis few other houses can match.

Centennial Asia Advisors is an independent research and advisory firm that works with governments, multilateral institutions, financial firms and leading MNCs.

Economic Policy and Strategic Advisors

<ul>
<li>While the headline consolidation seems welcome, this relies heavily on assumptions of higher government revenues, which gave the government more scope for spending. </li>
<li>The government continues to seek alternatives to reintroducing the abolished Goods and Services Tax, but these do not raise sufficient revenues to fund key policy objectives.</li>
<li>Measures to strengthen public finance governance and industrial upgrading are welcome steps to bolster long-term fiscal and economic prospects.</li>
</ul>


While the headline consolidation seems welcome, this relies heavily on assumptions of higher government revenues, which gave the government more scope for spending. 
The government continues to seek alternatives to reintroducing the abolished Goods and Services Tax, but these do not raise sufficient revenues to fund key policy objectives.
Measures to strengthen public finance governance and industrial upgrading are welcome steps to bolster long-term fiscal and economic prospects.


Malaysia’s Budget 2023 (Anwar’s Version)

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Cross Asset Strategy

With the Supreme Council of UMNO (Malaysia's former ruling party, which is now down to just 38 out of 220 MPs in the current parliament) withdrawing support from PM Muhyiddin's Perikatan Nasional (PN), the latter is theoretically down to 77 MPs. However, 26 UMNO MPs (including recently-appointed DPM Ismail Sabry Yaakob, Senior Minister Hishamuddin Hussein and Coordinating minister for Covid vaccination Khairy Jamaluddin) have not yet signed statutory declarations (SDs) withdrawing support from PM Muhyiddin Yassin's PN government. Even if he is able to hold onto all 26 MPs, however, Muhyiddin will have only 103 MPs, 8 short of a majority. Pakatan Harapan (PH), the main Opposition alliance led by Anwar Ibrahim, has 90 MPs, 21 short of a majority. If the 38 UMNO MPs swing their support to PH, it will be able to comfortably form a government, but that is unlikely immediately. Beginning with 12 UMNO MPs, Anwar will need another 9. If the Sarawak-based GPS goes along with the UMNO (hence BN) leadership and switches to PH (a big leap that the GPS has never made electorally in the past), that will suffice to enable Anwar to form a government. Alternatively, Anwar could form a government with the help of Shafie Apdal's Warisan (8 MPs) plus a couple of independents, or more easily with Warisan plus the 4 MPs from Mahathir's Pejuang. The King has thus far been reluctant to allow Anwar to form a government. The implicit fear among Malays (as perhaps also felt by many of the rulers) is that a PH government will be dominated by DAP, which will be its largest party. Given the political impasse, and the fact that PH (then including Muhyiddin's Bersatu) did win the last general election, a PH government would be morally legitimate. UMNO, however, will look primarily at the next general election, now unlikely to be held for at least another 9-12 months (until Covid recedes). With Muhyiddin losing credibility after the shambolic response to Covid in the past half-year, UMNO is now expressing outrage over the PN government's perceived insults to the King. Since it cannot form a government on its own, the UMNO leadership will likely go along with an Anwar-led government, as long as UMNO is prominently represented in it. The UMNO calculation will be that, when the party is ready for a post-Covid general election, UMNO will pull the plug on Anwar's government and take the country back to a general election. For now, uncertainty prevails (a big negative); but if Anwar Ibrahim is finally able to become Prime Minister (heading a genuinely multi-ethnic government and cabinet), it will be good for Malaysia in the longer-term.

With the Supreme Council of UMNO (Malaysia's former ruling party, which is now down to just 38 out of 220 MPs in the current parliament) withdrawing support from PM Muhyiddin's Perikatan Nasional (PN), the latter is theoretically down to 77 MPs. However, 26 UMNO MPs (including recently-appointed DPM Ismail Sabry Yaakob, Senior Minister Hishamuddin Hussein and Coordinating minister for Covid vaccination Khairy Jamaluddin) have not yet signed statutory declarations (SDs) withdrawing support from PM Muhyiddin Yassin's PN government. Even if he is able to hold onto all 26 MPs, however, Muhyiddin will have only 103 MPs, 8 short of a majority. Pakatan Harapan (PH), the main Opposition alliance led by Anwar Ibrahim, has 90 MPs, 21 short of a majority. If the 38 UMNO MPs swing their support to PH, it will be able to comfortably form a government, but that is unlikely immediately. Beginning with 12 UMNO MPs, Anwar will need another 9. If the Sarawak-based GPS goes along with the UMNO (hence BN) leadership and switches to PH (a big leap that the GPS has never made electorally in the past), that will suffice to enable Anwar to form a government. Alternatively, Anwar could form a government with the help of Shafie Apdal's Warisan (8 MPs) plus a couple of independents, or more easily with Warisan plus the 4 MPs from Mahathir's Pejuang. The King has thus far been reluctant to allow Anwar to form a government. The implicit fear among Malays (as perhaps also felt by many of the rulers) is that a PH government will be dominated by DAP, which will be its largest party. Given the political impasse, and the fact that PH (then including Muhyiddin's Bersatu) did win the last general election, a PH government would be morally legitimate. UMNO, however, will look primarily at the next general election, now unlikely to be held for at least another 9-12 months (until Covid recedes). With Muhyiddin losing credibility after the shambolic response to Covid in the past half-year, UMNO is now expressing outrage over the PN government's perceived insults to the King. Since it cannot form a government on its own, the UMNO leadership will likely go along with an Anwar-led government, as long as UMNO is prominently represented in it. The UMNO calculation will be that, when the party is ready for a post-Covid general election, UMNO will pull the plug on Anwar's government and take the country back to a general election. For now, uncertainty prevails (a big negative); but if Anwar Ibrahim is finally able to become Prime Minister (heading a genuinely multi-ethnic government and cabinet), it will be good for Malaysia in the longer-term. 

Malaysia in Political Flux: Muhyiddin Likely to Go, but Can Anwar Gain a Majority?

Malaysia has demonstrated the strengths of constitutional monarchy at a time when its northern neighbour, Thailand, is undergoing convulsions over King Rama X's consolidation of power in a de facto absolute monarchy (although Thailand too is a de jure constitutional monarchy since 1932). On 25th October, Malaysia's king (Agong) rejected Prime Minister Muhyiddin's advice (given 2 days earlier) to declare a state of Emergency (which would have suspended parliament, and been a significant blow to Malaysian democracy). After a sudden spurt in Covid cases, the Agong declared the incumbent government needed stability to deal with the challenge. Thus the Agong prolonged the life of Muhyiddin's weak, fraying coalition while preserving Malaysia's democracy. While the Agong's actions preserved democracy, he clearly did everything to ensure that Leader of the Opposition Anwar Ibrahim could not become Prime Minister -- delaying meeting him for 3 weeks, then sending a clear signal to UMNO (the former ruling party, which had indicated it would support Anwar's bid) that it should stay neutral. The upshot is that the Islamist PAS, which had been isolated by most other parties in the past, is now in a strong bargaining position relative to the main constituents of the rickety ruling coalition -- Muhyiddin's Perikatan Nasional (PN, of which PAS is currently a member) and UMNO-led Barisan Nasional (BN).At the next general election (not due before May 2023, but likely to be held sooner), PAS is likely to align more with UMNO, although some of the latter's members will defect to Anwar's PKR beforehand. Muhyiddin's party PPBM (with 31 seats in a parliament of 222 currently) appears to be unpopular, mainly because Azmin Ali (its effective deputy leader) is seen as having betrayed PKR (Anwar's party, of which he was effective deputy leader previously). If BN-PAS are to allow PPBM into their alliance, the latter will receive a lower allocation of seats, PAS more than it has currently. While an UMNO-PPBM-PAS alliance of Malay Muslims could be electorally potent, it will drive Malaysia very far away from the non-racial (or at least multi-racial) vision on which PH (Pakatan Harapan) fought and won the 2018 election. Despite the short-term relief from the non-declaration of Emergency, the direction that Malaysian politics is now taking (with PAS increasingly in the ascendant) is deeply negative for the country's future.

Malaysia has demonstrated the strengths of constitutional monarchy at a time when its northern neighbour, Thailand, is undergoing convulsions over King Rama X's consolidation of power in a de facto absolute monarchy (although Thailand too is a de jure constitutional monarchy since 1932). On 25th October, Malaysia's king (Agong) rejected Prime Minister Muhyiddin's advice (given 2 days earlier) to declare a state of Emergency (which would have suspended parliament, and been a significant blow to Malaysian democracy). After a sudden spurt in Covid cases, the Agong declared the incumbent government needed stability to deal with the challenge. Thus the Agong prolonged the life of Muhyiddin's weak, fraying coalition while preserving Malaysia's democracy. While the Agong's actions preserved democracy, he clearly did everything to ensure that Leader of the Opposition Anwar Ibrahim could not become Prime Minister -- delaying meeting him for 3 weeks, then sending a clear signal to UMNO (the former ruling party, which had indicated it would support Anwar's bid) that it should stay neutral. The upshot is that the Islamist PAS, which had been isolated by most other parties in the past, is now in a strong bargaining position relative to the main constituents of the rickety ruling coalition -- Muhyiddin's Perikatan Nasional (PN, of which PAS is currently a member) and UMNO-led Barisan Nasional (BN).At the next general election (not due before May 2023, but likely to be held sooner), PAS is likely to align more with UMNO, although some of the latter's members will defect to Anwar's PKR beforehand. Muhyiddin's party PPBM (with 31 seats in a parliament of 222 currently) appears to be unpopular, mainly because Azmin Ali (its effective deputy leader) is seen as having betrayed PKR (Anwar's party, of which he was effective deputy leader previously). If BN-PAS are to allow PPBM into their alliance, the latter will receive a lower allocation of seats, PAS more than it has currently. While an UMNO-PPBM-PAS alliance of Malay Muslims could be electorally potent, it will drive Malaysia very far away from the non-racial (or at least multi-racial) vision on which PH (Pakatan Harapan) fought and won the 2018 election. Despite the short-term relief from the non-declaration of Emergency, the direction that Malaysian politics is now taking (with PAS increasingly in the ascendant) is deeply negative for the country's future.    

Agong Asserts Himself, Preventing Change of PM but Disallowing Emergency Rule

Malaysia's Leader of the Opposition, Anwar Ibrahim, who was Deputy Prime Minister (and Finance Minister) during and immediately after the Asian Financial Crisis (1997-98), but then spent many years in prison on trumped-up charges of "sodomy" (which is illegal in Malaysia), has announced at a press conference on 23 September that he has the support of a majority of MPs, and hence has informed the King (Agong) that he is ready to form a government. The normal procedure would be a Vote of No-Confidence in the Dewan Rakyat (parliament), but the King had picked Muhyiddin as PM at the beginning of March 2020 based on a list of MPs, so Anwar is following the same route. The Sabah state election on Saturday (26th September) will be an important barometer of the national political tide. Sabah and Sarawak had traditionally constituted the "fixed deposit" for the erstwhile ruling coalition, Barisan Nasional (National Front). But in 2018, Sabah narrowly voted for a PH slate led by Warisan (Sabah Heritage Party), a new party established by Shafi Apdal, a former Vice President of UMNO who had resigned in 2015 over Najib's corruption. In this week's Sabah state election, Warisan and its PH (Pakatan Harapan) allies appear to have the upper-hand, with Warisan's "Sabah-nationalist" campaign gaining strong support -- especially at a time when the Philippines' House of Representatives had re-staked a historical claim to Sabah. If the Warisan-led PH coalition wins the state election in Sabah, it won't change the federal equation, but will strengthen PH's hand -- and likely lead to more defections to Anwar's side. A number of uncertainties remain: Mahathir hasn't declared support for Anwar, and he is close to Shafi Apdal, so there could be yet another twist if Mahathir again throws his hat into the prime ministerial ring. But if Anwar truly has statutory declarations from more than 112 MPs, then he will become Prime Minister. Anwar's government will be more inclusive of all the races and religions in Malaysia, but he has stressed that it will have a Malay-Muslim majority. Anwar is a more experienced figure with an international reputation, and has built Malaysia's first truly multi-racial party (PKR) in alliance with multi-racial (but Chinese-Malaysian-dominated) DAP. An Anwar government thus promises to be fundamentally different from all that came before -- holding out the prospect of transforming Malaysia into a more meritocratic and race-neutral nation, a massive long-term positive for the country and its economy. Substantially greater integrity and reduced corruption will be the main positive from an Anwar administration. But Penang and its electronic sector (including <a href="https://www.smartkarma.com/entities/inari-amertron-bhd" target="_blank" data-smartkarma-citation="entities:10265:1" rel="noopener">Inari Amertron (INRI MK)</a>, <a href="https://www.smartkarma.com/entities/malaysian-pacific-industries-berhad" target="_blank" data-smartkarma-citation="entities:18893:1" rel="noopener">Malaysian Pacific Industries (MPI MK)</a> and <a href="https://www.smartkarma.com/entities/globetronics-technology-bhd" target="_blank" data-smartkarma-citation="entities:10571:1" rel="noopener">Globetronics Technology (GTB MK)</a> ) will be beneficiaries, and the cash-rich Hong Leong group (closely associated with Anwar throughout his career) are likely to benefit too, likely investing much more in Malaysia (having invested mainly in Hong Kong, Singapore and the UK over the past two decades).

Malaysia's Leader of the Opposition, Anwar Ibrahim, who was Deputy Prime Minister (and Finance Minister) during and immediately after the Asian Financial Crisis (1997-98), but then spent many years in prison on trumped-up charges of "sodomy" (which is illegal in Malaysia), has announced at a press conference on 23 September that he has the support of a majority of MPs, and hence has informed the King (Agong) that he is ready to form a government. The normal procedure would be a Vote of No-Confidence in the Dewan Rakyat (parliament), but the King had picked Muhyiddin as PM at the beginning of March 2020 based on a list of MPs, so Anwar is following the same route. The Sabah state election on Saturday (26th September) will be an important barometer of the national political tide. Sabah and Sarawak had traditionally constituted the "fixed deposit" for the erstwhile ruling coalition, Barisan Nasional (National Front). But in 2018, Sabah narrowly voted for a PH slate led by Warisan (Sabah Heritage Party), a new party established by Shafi Apdal, a former Vice President of UMNO who had resigned in 2015 over Najib's corruption. In this week's Sabah state election, Warisan and its PH (Pakatan Harapan) allies appear to have the upper-hand, with Warisan's "Sabah-nationalist" campaign gaining strong support -- especially at a time when the Philippines' House of Representatives had re-staked a historical claim to Sabah. If the Warisan-led PH coalition wins the state election in Sabah, it won't change the federal equation, but will strengthen PH's hand -- and likely lead to more defections to Anwar's side. A number of uncertainties remain: Mahathir hasn't declared support for Anwar, and he is close to Shafi Apdal, so there could be yet another twist if Mahathir again throws his hat into the prime ministerial ring. But if Anwar truly has statutory declarations from more than 112 MPs, then he will become Prime Minister. Anwar's government will be more inclusive of all the races and religions in Malaysia, but he has stressed that it will have a Malay-Muslim majority. Anwar is a more experienced figure with an international reputation, and has built Malaysia's first truly multi-racial party (PKR) in alliance with multi-racial (but Chinese-Malaysian-dominated) DAP. An Anwar government thus promises to be fundamentally different from all that came before -- holding out the prospect of transforming Malaysia into a more meritocratic and race-neutral nation, a massive long-term positive for the country and its economy. Substantially greater integrity and reduced corruption will be the main positive from an Anwar administration. But Penang and its electronic sector (including Inari Amertron (INRI MK), Malaysian Pacific Industries (MPI MK) and Globetronics Technology (GTB MK) ) will be beneficiaries, and the cash-rich Hong Leong group (closely associated with Anwar throughout his career) are likely to benefit too, likely investing much more in Malaysia (having invested mainly in Hong Kong, Singapore and the UK over the past two decades).    

Anwar Makes His Move at Last; Election in Sabah This Week Should Bolster Him Too

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Malaysia Treasury (MALAYSIA GOVT)

Rising Ringgit, Eroding Fundamentals

For investors wanting to get a better understanding of how a country's overall balance of payments impact the level of foreign exchange reserves...

Kok Peng Chan

Malaysia’s Budget 2023 (Anwar’s Version)

The revised 2023 budget contains positive steps to bolster long-term fiscal and economic prospects, even if the pace of consolidation may be...

Manu Bhaskaran

Malaysia in Political Flux: Muhyiddin Likely to Go, but Can Anwar Gain a Majority?

UMNO's withdrawal of support reduces PN to minority, albeit with 2/3 of UMNO MPs not backing its leaders. Anwar needs 21 more MPs: he can get them...

Prasenjit K. Basu

Agong Asserts Himself, Preventing Change of PM but Disallowing Emergency Rule

Constitutional monarchy saved Malaysian democracy by ruling out an Emergency. But Agong's tilt against Anwar has implicitly made the Islamist PAS...

Prasenjit K. Basu

Anwar Makes His Move at Last; Election in Sabah This Week Should Bolster Him Too

Anwar Ibrahim, who was Deputy Prime Minister (and Finance Minister) during and after the

Prasenjit K. Basu

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