Malaysias election cycle adds another layer of uncertainty to the countrys risk assessment, according to ECR analysts. The sovereigns upcoming election, scheduled for May 5, is expected to be the most tightly contested since independence in 1957.
A report by Nomura claims ruling coalition Barisan Nasional could lose a substantial number of parliamentary seats, and there was a risk opposition coalition Pakatan Rakyat could win at the May 5 election.
The incoming government will need to focus on roadmaps aimed at transforming Malaysia into a high-income economy by 2020, reports Nomura.
This will have a direct impact on the pace and composition of fiscal adjustment, according to a credit outlook report by Moodys.
The outcome of these elections, particularly the strength of the incoming governments mandate, will determine the outlook for important fiscal reforms and, thus, fiscal sustainability, states Moodys.
The incumbent administration has targeted a 0.4% deficit-reduction target in 2013, which would lower the countrys deficit to 4% of GDP. The government has embarked on a successful fiscal consolidation plan, successfully reducing the countrys deficit by 2.3% since it last took office in 2009.
However, total government debt has risen moderately since 2009, from 50.8% of GDP to 52.1% in 2012, reflecting the stakes at play in the next general election.
Meanwhile, election uncertainty could temporarily push economic policy concerns into the background, with political discourse likely to centre on governance in the run up to May 5, according to Moodys.
Analysts participating in the ECR Survey have reacted negatively to the countrys election challenges. Malaysias overall risk assessment declined by two points to 61.8 in Q1-2013. After corruption, the countrys government stability indicator was of most concern to ECR analysts.
Malaysias score decline left the country slipping one place in the ECR global rankings. However, with a global rank of 35, it still remains in contention with Macau and Brazil for a spot in ECRs second-safest investment tier.
An interim update report by Nomura, published on April 9, lists Malaysias imminent election as the ninth most important global political development, relevant to markets.
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