Previous Quarterly Editions
Expropriation Risk: 41 44 43 44 ►Political Violence Risk:37 38 35 35 ►Terrorism Risk:36 34 32 34 ▼Exchange Transfer and Trade Sanction Risk: 45 35 35 35 ►Sovereign Default Risk:27 37 37 37 ►
TREND ►
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: LowFood/fuel policy protests: High
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Malaysia’s very robust economic growth in 2022 of 8.7% could dwindle to half that in 2023 for multiple reasons – both external and internal. These range from continued turmoil in the international economy, exacerbated by the Russia/Ukraine crisis since February 2022, to the possibility a fragile Malaysian government coalition formed after general elections in November 2022 could collapse by the middle of 2023.
Nevertheless, in 2022 Malaysia enjoyed its highest growth rate in two decades and showed itself to be an outlier in a global economy facing the risk of recession. The country’s full re-opening in April 2022, as the COVID-19 pandemic begins to recede, and the resilience of its export sector are major factors. Furthermore, in contrast to countries that raised debt levels with borrowing to cover inflation and other economic upsets, the Malaysian government imposed higher taxes to avoid over-borrowing.
Prime Minister Anwar Ibrahim plans to raise taxes further, particularly on the wealthy, which he hopes will extend the economic cushion and appeal to lower-income Malaysians, who are increasingly disillusioned with the political establishment because of corruption. In 2022, the government also pressed ahead with plans to further digitalise the economy, with 90% of the population of 33 million now online.
Continued volatility and persistent inflation in the global economy, accompanied by anticipated monetary tightening by major central banks, have lowered estimates of Malaysia’s economic performance in 2023, with the IMF expecting growth to moderate to 4.5% this year. Some sectors, such as agriculture, mining, and construction, remain below pre-pandemic levels and could contribute to a slowdown. China’s re-opening of its borders presents a wild card, as it does to the rest of South-east Asia.
Malaysia’s economic performance this year will also be affected by the country’s continued risk of political instability. The 2022 election intended to end a protracted period of political instability, with five prime ministers in just six years, instead produced an administration that is both appointed and elected. The results of the November polls were inconclusive, leading King Abdullah to appoint Anwar, leader of the Pakatan Harapan coalition of parties, as Prime Minister and task him with forming a government coalition.
In order to do this, Anwar was compelled to cast a very wide net and included in the coalition the United Malays National Organisation (UMNO), the former dominant party whose past leader and former Prime Minister, Najib Razak, was imprisoned for corruption related to the 1MDB scandal in 2022. In March 2023, another former UMNO prime minister, Muhyiddin Yassin, was arrested on charges of abuse of power and money-laundering. Nevertheless, Anwar made UMNO President Zahid Hadid, himself facing trial for corruption, as first Deputy Prime Minister and gave UMNO several key cabinet portfolios, including international trade. This was intended to keep UMNO in the coalition, which could collapse if the party chose to leave.
A series of six state elections in the first half of 2023, as well as the course of Muhyiddin’s court case, will be key indicators of political stability in Malaysia in the short term. If UMNO prevails in the state elections, it may pull away from the Anwar administration and challenge it in new elections. The party may also choose the withdraw if their political base – conservative ethnic Malays – launch protests over the trial of Muhyiddin and Najib’s incarceration.
Anwar risks losing political strength from other directions, however. His decision to include UMNO in the government coalition was a pragmatic one, but it could cause a loss of support from his political base of younger voters who are inclined to be more pro-democracy than their elders.
Malaysia’s expropriation risk remains low, especially because the government is determined to revive and extend the country’s export sector. Anwar served as Finance Minister, concurrent with being Deputy Prime Minister, in the 1990s and was pushed out of office (and into prison) by then-Prime Minister Mahathir Mohamad when the two disagreed over handling Malaysia’s response to the Asian Financial Crisis; Anwar had favoured cooperation with the IMF, while Mahathir chose to impose currency controls independently. Assuming he is able to stabilise the government coalition, Anwar is likely to take pains to reassure international investors that Malaysia is a reliable partner.
Ethno-nationalism has been rising in Malaysia (as well as in Indonesia) in recent years, which presents possibilities for political violence from several sources. Corruption scandals have diminished UMNO’s strength in the broader electorate, and party loyalists are more radicalised as a result. If UMNO is marginalised further, they could launch attacks on other Malay parties or, more likely, political parties that represent the Chinese and Indian populations. These are likely to sporadic and spontaneous but would raise the political temperature.
More broadly, Malaysia could see communal attacks on ethnic and religious minorities, which would present a greater risk to stability in the country and deter international investment.
TREND ▼
Malaysia’s risk of terrorism has been relatively low since the start of the COVID-19 pandemic, which curtailed activity by international jihadist groups. Kuala Lumpur has also implemented programmes to re-integrate Malaysians fighting abroad with Islamic State or Al-Qaeda, lowering the risk of importing extremism.
However, the November 2022 elections revealed that indigenous jihadism in Malaysia may be rising. The party receiving the largest plurality in the elections, and its strongest showing in over 50 years, was the Parti Islam Se-Malaysia (PAS), the country’s most prominent Islamist party. Although PAS’s electoral performance has never brought it close to forming a government – and Anwar has not included it in the ruling coalition – the party has attempted to impose Sharia law on states when it has won a majority at the local level. Higher numbers for PAS in general elections may signal broader support for fundamentalism among ethnic Malays in the electorate.
The Malaysian ringgit rose 7.7% against the U.S. dollar from November 2022 to March 2023 and is expected to continue strengthening in 2023. As with other smaller economies, Malaysia’s currency will be influenced by the monetary policy of key countries, the U.S. in particular.
From the standpoint of sanctions, as concern over North Korea’s nuclear programme increases, sanctions on Pyongyang will likely increase. For its part, for several years South-east Asia has been a ‘grey zone’ for North Korean labour, and Malaysia has resisted joining Western sanctions on Pyongyang. Depending on how policy towards North Korea evolves, Malaysia’s government may need to reassess its approach.
Regarding the Russia/Ukraine crisis, Kuala Lumpur continues to walk a middle line between the West on the one hand and Russia and China on the other. Malaysia and Russia are expected to sign Memoranda of Understanding for trade in agriculture and fisheries this year, which will likely increase Malaysian exports to Russia.
However, Anwar’s administration could be met with a public backlash if the two countries expand trade relations at this time. In February, Dutch prosecutors publicly stated they had evidence Russian President Vladimir Putin personally decided to supply long-range anti-aircraft missiles to pro-Russian separatists in eastern Ukraine before they shot down Malaysia Airlines Flight 17 in July 2014, killing all 298 passengers and crew members.
Although Malaysia is not itself the target of international sanctions, Kuala Lumpur risks exposure to secondary sanctions through its continuing relationship with Russia as the conflict in Ukraine persists.
Malaysia’s public debt for 2022 stood at 1.08 trillion ringgit or 60.4% of the GDP. Debt is expected to remain manageable because of the government’s continuation of taxation programmes and a sufficient balance of international reserves, which will enable the government to avoid the risk of refinancing short-term external liabilities.
Return to contents Next Chapter
