Malaysia’s difficult search for certainty
On 12 January, Malaysian King Al-Sultan Abdullah declared a nationwide state of emergency. The declaration was largely unexpected and took place less than a day after the announcement of a second round of strict COVID-19 lockdowns for several states.
The official aim of the emergency is to help combat a devastating third wave of infections, as daily COVID-19 cases averaged 2487 in the week leading up to the declaration. Prime Minister Muhyiddin Yassin suggested in a televised speech that emergency ordinances may be enacted to allow the government to access private healthcare assets and empower the armed forces to assist with public health services.
Critics have argued that existing laws and lockdown measures are more than adequate to stem the tide of infections. Instead, much of the focus lies on the political significance of the emergency to Muhyiddin’s embattled premiership. While leaders in neighbouring Indonesia and the Philippines are enjoying unprecedented popularity ratings, Muhyiddin has faced multiple challenges to his loose Perikatan Nasional government coalition since the second half of 2020.
With parliamentary sittings and the possibility for snap elections ruled out throughout the emergency, Muhyiddin has bought time for himself to further establish control over the next few months. His justification banks on public sentiment that tackling the health crisis should take precedence over politics. This was made clear in his speech when he blamed the Sabah state elections, held last September, for the current wave of infections.
The precarious political situation is just one of many uncertainties that Malaysia faces this year. The initial optimistic outlook of containing the pandemic, bolstered by the success of an early and decisive lockdown last year, has all but evaporated. Similar comprehensive measures were proposed to check the current wave in its early stages, but had to be watered down due to economic considerations. Collective fatigue with lockdown regulations has also been exacerbated by the public perceptions of lenient and differential treatment for politicians who violated these restrictions.
Meanwhile, initial plans to vaccinate 70 per cent of the population by the first quarter of 2021 have had to be drastically revised. The first batch of vaccines from Pfizer–BioNTech will become locally available at the end of February and is only sufficient for 20 per cent of the population. The timeline to achieve herd immunity is still up in the air as the Sinovac vaccine, which is supposed to be the second-largest source of vaccines for Malaysia, undergoes further scrutiny over its efficacy.
This does not bode well for a quick economic recovery, which hinges on successfully containing the pandemic. Private consumption is a key driver of Malaysia’s economy, accounting for 60 per cent of GDP in 2019. The initial round of lockdowns last March curtailed private consumption and was a major factor for the GDP contraction of 17.1 per cent in the second quarter of 2020 — a record low not seen since the Asian Financial Crisis.
Various stimulus measures have since been introduced to cushion the blow for the hardest hit while boosting private consumption and investment. This includes a heavily debated scheme of allowing up to 8 million private sector employees to withdraw money from their compulsory retirement savings plan. Wage subsidy programs have also helped to save 2.4 million jobs, although unemployment rates remain elevated at around 4.7 per cent.
In line with global trends, Malaysia saw a fall in foreign direct investment (FDI). It recorded RM8.6 billion (US$2.1 billion) in FDI in the first half of 2020, a steep decline from the RM23.3 billion (US$5.8 billion) recorded during the same period in 2019. This is likely to perpetuate an existing downwards trend which began in 2017, as Malaysia struggles to find a competitive advantage against its regional neighbours Indonesia, Singapore and Vietnam.
There are pockets of optimism in these challenging times. A robust civil service, spearheaded by capable technocrats, provided much-needed administrative continuity throughout the unprecedented political changes last year. The ongoing agenda to digitalise public services also ensured that many essential services could be carried out online throughout the lockdown.
On the economic front, Malaysia is expecting external demand to bounce back quickly as its two largest trading partners, China and Singapore, have been largely successful in containing the pandemic. The signing of the Regional Comprehensive Economic Partnership (RCEP) in November 2020 will also boost Malaysia’s competitiveness, particularly in its electrical and electronics industry.
Moving forward, the pandemic provides an impetus for the dual reforms of expanding technology infrastructure and moving Malaysia up the global value chain. Issues with poor internet connectivity outside of urban areas, which hindered the capacity for remote learning and working during the lockdown, attracted much public attention. Investment in technology and the necessary skilled labour will be pivotal to Malaysia’s aspirations to scale up existing small and medium-sized enterprises and attract quality investments.
For better or worse, it appears that living with uncertainties on multiple fronts is the new normal in Malaysia. A few strong institutions and a diversified economy will help Malaysia weather another year of surprises.
This article was originally published on January 30, 2021 in East Asia Forum.