Economic fallouts from hung parliament

Despite Malaysia's early success in the overall turnout for the 15th general election (GE15) last Saturday, with the inclusion of Undi 18 which saw the voter turnout surpassing that of GE14 at 73.89%, our country has yet to form a stable government. 

No party was able to win a simple majority despite the anticipation of the people. Parliament remains hung five days after voting day. 

The economic stability of Malaysia is thought to be in jeopardy because of the hung parliament. The state of uncertainties on government policy and functions may lead to fluctuations in the bond and stock markets, resulting in financial volatility. 

The ringgit dropped as much as 0.7% to 4.59 against the greenback and Malaysia’s stock index dropped 1.22% on Nov 21. The ringgit is also predicted to return to the 4.75 level, according to technicals. The ringgit’s depreciation was most likely a response to the hung parliament situation. Fortunately, the local note increased slightly against the dollar, to 4.57 on Wednesday. 

Malaysia’s hung parliament, in addition to China's Covid-19 restrictions and high cases, global oil prices, the weaker German producer price index and rampant inflation, were further factors in the heavy blow against the ringgit. In fact, there is a direct link between political unrest and capital outflows, which will dampen economic growth and cause higher unemployment, uncertainty in the bond market, and currency depreciation.

In light of the ringgit drop, a swift decision should be made on the formation of a stable government to stabilise the economy against any further threats. Although economic activities have proceeded as usual throughout the absence of a stable government, the situation has deteriorated investors’ confidence, leading to them withdrawing their planned investments in Malaysia as they are unable to make informed predictions.

This has had a significant impact on the ringgit and foreign capital inflow. RM 7.32 billion was wiped off from the market capitalisation of Bursa Malaysia stocks on Monday, due to the conclusion of an unresolved government. 

Following the situation, with the recent meetings in hearing coalitions' stands on forming a simple majority, the Yang di-Pertuan Agong's proposal of a unity government may provide the means of ensuring that all parties' views are heard. In fact, every coalition manifesto pledged to weather the impending recession, which Malaysia will experience given that we have a small, open economy. Given the shared concerns of all parties, building this government should not be a problem. 

Indeed, there should be enough stress for the formation of a new government before the end of this week to ensure the stability of the economy moving forward. This is to push ahead with recovery and allow the exchange rate to rebound. 

For Malaysia's future in the next five years, there should be a clear vision and direction, leaving behind pride and self-interest, with the emphasis on bolstering the economy and the agenda of the people. The future government should keep the best interests of the people in mind as we emerge from the pandemic, assisting us in getting better and protecting us from the predicted severe economic turbulence.

The views expressed in this article are those of the author(s) and do not necessarily reflect the position of MalaysiaNow.