This article first appeared in The Edge Malaysia Weekly on December 4, 2023 - December 10, 2023

PRIME Minister Datuk Seri Anwar Ibrahim has spent the last 25 years calling for a reformation of the country’s governance and socioeconomic structure. Millions of Malaysians have rallied around his call for “reformasi” and remained true to the agenda since 1998.

One year into his premiership, many Malaysians are holding him to his pledge to reform the country even though the government he leads is not made up of only Pakatan Harapan (PH) coalition parties that have espoused these reforms.

Anwar took office in November 2022 following a pact made by PH and Barisan Nasional — the very coalition that was in power when billions of ringgit were stolen under the guise of development undertaken by 1Malaysia Development Bhd. Not only that, he was put behind bars twice when BN was still in power.

While the current political situation is far from ideal, political analysts and economists agree that the political compromise to “save Malaysia” has to work as time is running out for the government to right decades of wrongs and put the country back on a sustainable growth trajectory.

“The next two to three years are critical for the government to deliver on a comprehensive but properly sequenced reform agenda that sets the pathways to meet the country’s social, economic, political and environmental goals. The time frame for structural reforms varies from immediate, such as the fuel subsidy rationalisation, to fiscal consolidation in the medium term and structural upgrading in the longer term,” says Dr Yeah Kim Leng, director of the economic studies programme at the Jeffrey Cheah Institute on Southeast Asia.

Yeah is one of five experts appointed to the Advisory Committee to Finance Minister (ACFIN), set up in February to advise in four key areas, namely government revenue, subsidies and social protection, government-owned entities and national debt.

To the government’s credit, early steps are in place, such as the roll-out of a targeted electricity subsidy since the start of 2023. There have also been announcements on the removal of the blanket subsidy for diesel in early 2024 and RON95 petrol in the second half of next year. Together, these three make up the biggest component of subsidies in the national budget.

Many studies are either ongoing or have been completed, including the review of approved permits to increase market competitiveness, the implementation of a progressive wage policy as a means of improving social protection and a new salary scheme for civil servants, whose emoluments and pensions have far outpaced federal government revenue in terms of growth over the years.

Still, the government is seen as being too slow in its progress. On subsidy rationalisation, a key hurdle is the development of the PADU central database aimed at ensuring only the needy receive subsidies, and in the right amounts.

However, with Malaysia’s subsidy bill expected to exceed RM81 billion this year, can’t the government put in some temporary measures first while PADU is being developed, so that the country can reallocate funds to help the needy?

It is not a secret that Malaysia’s fuel subsidy is not sustainable and benefits the rich more than it does the poor. In the case of the blanket fuel subsidy, 53% of it is enjoyed by the top 20 income earners, according to Minister of Economy Rafizi Ramli.

In 2022, the government spent RM45.18 billion of its operating expenditure (opex) subsidising petroleum products, according to the Auditor-General’s Report on federal government financial statements. That comprises RM23.08 billion for RON95 (up 416% from RM4.47 billion in 2021) and RM18.67 billion for diesel (up 543% from RM2.9 billion in 2021).

To put the figures into context, the petroleum product subsidies were larger than the entire budget for the Ministry of Health last year. That is before including the petroleum product subsidies paid through the Covid-19 fund.

Based on The Edge’s assumptions, raising the RON95 price by 10 sen per litre would increase one’s monthly fuel cost by RM36 (driver of an average car) or RM8.64 (motorcyclist) — amounting to a 10% increase in the fuel cost.

This adjustment could save the government up to RM1.3 billion a year in subsidies, which could be channelled to social assistance programmes, thus ensuring the continued support of vulnerable groups while setting the stage for an eventual subsidy rationalisation.

The government has budgeted RM52.8 billion for subsidies and social assistance in 2024, representing 13.4% of its total expenditure and 17.2% of its revenue. It is not known what the figure will be after the government’s subsidy rationalisation is taken into account.

Malaysia desperately needs to rationalise its subsidies and undertake other fiscal reforms to not only reallocate resources better, but also address the risk of spending more than it can afford. The federal government’s debt is projected to be about 64% of gross domestic product (GDP) at end-2024 — only one percentage point from the statutory debt limit of 65%, according to the Ministry of Finance (MoF) in its Fiscal Outlook and Federal Government Revenue Estimates Report.

At 64% of GDP, the federal government debt is estimated at RM1.263 trillion, higher than the RM1.147 trillion (62%) in 2023 and RM1.079 trillion (60.3%) in 2022. If the subsidy structure is not rationalised, the government’s debts could swell further.

Subsidies (RM52.78 billion in 2024), emoluments and pensions (RM128.09 billion), and debt service charges (RM49.8 billion) — the three main components of government opex — have grown faster than federal government revenue over the years. Due to the elevated opex, the country’s current balance (revenue minus opex) has not exceeded RM4 billion since 2011.

A blanket subsidy, which also benefits the top 20% income group who contributed RM33.68 billion or more than 85% of the personal income tax collected in 2022, results in fewer resources being allocated to the needy.

The Employee Wages Statistics (Formal Sector) Report for the second quarter of 2023 shows that 34.7% of formal employees in Malaysia earned less than RM2,000 a month. While the level had decreased by 3.6 percentage points year on year as at June 2023, the fact that more than a third of workers earn less than the living wage in the country shows that many still need government assistance.

Recall that in March 2018, Bank Negara Malaysia released a report titled “The Living Wage: Beyond Making Ends Meet”, stating that a single adult living in Kuala Lumpur requires a monthly wage of RM2,700 to afford a minimum acceptable living standard.

This was prior to the chain of events that led to high inflation globally and the strengthening of the US dollar against emerging market currencies such as the ringgit, which resulted in rising prices in Malaysia.

Indeed, the unity government came to power during a period of great challenges, both domestically and globally. The government has been working to ensure the people are not overly burdened by the rising cost of living through various measures.

However, the question is, with the government not being overly popular with the people, can it implement its socioeconomic reform agenda? Especially when the unity government is made up of several coalitions who might be concerned about their own constituencies.

PH is popular among urbanites while BN is still struggling to win back the support of rural Malays from Perikatan Nasional. Meanwhile, Gabungan Parti Sarawak (GPS) has been taking a contradictory stance in several policies adopted by Putrajaya.

“Reform is still lacking, maybe because this is a unity government (UG) and not a PH government, and they have to sort out the similarities among the coalition members. The UG must find the political will to put in the reform agenda as their dominant master plan in order to maintain the trust and confidence of [their supporters],” says Dr Sivamurugan Pandian, professor of political sociology at Universiti Sains Malaysia.

“They must consolidate themselves first before they can rationalise their policies. It must move beyond political interest if they want to make sure the UG does not face a trust deficit, even though some surveys showed so.”

A survey done by the Merdeka Centre for Opinion Research that was published on Nov 22 found that 60% of the respondents said the country had a negative outlook due to persistent concerns about inflation and economic growth. This figure was a low 29% in December 2022, a month after the 15th general election (GE15).

The percentage of respondents in the survey who were dissatisfied with the performance of the unity government has been rising since December 2022. As at October 2023, the percentage was 48% of respondents, compared with only 25% in December 2022.

“In our view, the movements in voter sentiment are largely driven by their concerns about the economy and how it affects their livelihoods. In terms of their biggest concern, 78% of voters cite economic concerns as the number one issue faced by the people today,” Merdeka Centre states in a press release that accompanied the survey findings.

Fiscal and economic reforms aside, the government is also being taken to task by the people for not being quick to enact political and governance reforms.

Since the collapse of the BN government in 2018, and following the series of corruption cases being tried in the courts, the people have harboured hopes that corrupt politicians and their collaborators would be put behind bars.

One of the biggest cases involved Deputy Prime Minister Datuk Seri Ahmad Zahid Hamidi, who was charged with 47 counts of graft involving Yayasan Akalbudi funds. On Sept 4, the High Court granted the Umno president and Barisan Nasional chairman a discharge not amounting to acquittal (DNAA) after then attorney-general (AG) Tan Sri Idrus Harun decided to not pursue the case.

While it is up to the discretion of the AG under the Federal Constitution to discontinue prosecution of a case, many questioned the decision as the prosecution had established a prima facie case against Zahid.

As Zahid is deputy prime minister in Anwar’s cabinet and an important ally, many accused the PM of putting aside his ideals to secure BN support. Anwar has denied having any influence on Idrus regarding Zahid’s case.

Regardless, this episode put the government in a precarious situation. There have even been calls from supporters of former prime minister Datuk Seri Najib Razak, who has been convicted for corruption and still facing charges in multiple cases, to be released or given a royal pardon.

The AG has both the power of defence attorney and public prosecutor for the government. With cases involving members of the government, the AG’s decisions, despite being made according to the law and constitution, may come across as being politically motivated. Hence, the call to separate the power of public prosecutor from the AG. In the past, parties on the opposition bench, including PH before it came to power, would pick on this matter time and again.

The government is currently studying the legality and constitutionality of separating the power of the public prosecutor from the AG. But whether it could have been done over the past year is anyone’s guess, as separating the power of the public prosecutor from the AG would require the constitution to be amended.

“What is the difficulty in political reforms? Reform of MACC (Malaysian Anti-Corruption Commission), separation of PP (public prosecutor) from AGC (Attorney-General’s Chambers), Political Financing Act, Parliamentary Services Act ... These are low-hanging fruit that will inspire confidence across the board, whether foreign or domestic investors, or rural Malays or Sabahans and Sarawakians,” says Dr Edmund Terence Gomez, former professor of political economy at Universiti Malaya.

“I don’t think any Malaysians will be unhappy to do these reforms. His [Anwar’s] position won’t be jeopardised, but be enhanced.”

Gomez has accused the government of dragging its feet in introducing the Political Financing Act, which would regulate political funding received by politicians and political parties.

“Academicians who are independent and appointed by the Speaker have given their recommendations after extensive research on the Political Financing Act, have provided the draft on the law and are even willing to help do more,” he points out.

“Why are they [the government] stalling? That means there is no political will to do it.”

Zahid’s DNAA cost the government one parliamentary seat — Muar — won by the former president of the Malaysian United Democratic Alliance (MUDA) Syed Saddiq Syed Abdul Rahman in GE15. The young politician had been relentless in keeping the government on its toes, prior to him being convicted in his own corruption case involving the misappropriation of Parti Pribumi Bersatu Malaysia’s youth wing funds when he was its chief three years ago.

It is not known whether the government views the reforms of the AGC and other governance institutions as urgent and requiring immediate attention. Nevertheless, it has managed to pass the Public Finance and Fiscal Responsibility Act.

This shows the government can and has worked together to achieve a stated goal, putting to use the two-thirds majority that it has in the Dewan Rakyat. The unity government commands 147 of the 222 seats and is supported by five Bersatu members of parliament (MPs).

“I don’t see ‘political strength’ as an impediment given the [government’s] seats in the Dewan Rakyat. [It’s] more of political will and the balance of priorities at the political end. The economic imperatives of many of these reforms are clear,” says Dr Nungsari Ahmad Radhi.

Nungsari sits on ACFIN with Yeah; Datuk Amar Abdul Hamed Sapawi, chairman of Sarawak Energy Bhd; Datuk Ahmad Fuad Md Ali, executive chairman of FPSO Ventures Sdn Bhd; and Datuk Dr Rajah Rasiah, distinguished professor of economics at the Asia-Europe Institute, Universiti Malaya.

For Nungsari, time is of the essence.

“Much of these reforms are known and decisions which were delayed made them more onerous to sort out. Further delays will add to that. There is also a terminal point beyond which things might start falling off, rather than gliding gently downwards,” he says.

Nevertheless, unlike Gomez, Nungsari does not think there is low-hanging fruit that the government can address first on its reform agenda.

“There is no low-hanging fruit. Only tough decisions. That’s why the trade-offs must be well understood. Nothing is for free, every decision will entail a trade-off. What are the priorities to measure these?” he says.

It would be inaccurate to say the government is not doing anything at all to implement its reform agenda and improve the livelihoods of the people. However, the government is facing a trust deficit.

This trust deficit will continue to erode if the early reforms are not carried out immediately and if the government’s policies do not translate into better livelihoods for the people. And if it persists, the trust deficit will be a major hurdle for the government in implementing its reform agenda.

“It is important to ensure the initial reforms are carried out effectively to counter negative perceptions of the administration and reduce the trust deficit that is the bane of the reform agenda that is genuinely people-centric. In a virtuous cycle, public confidence in the government will enable more difficult and complex reforms such as social health financing and pension reforms to be carried out successfully,” says Yeah.

There seems to be a gap between what the Anwar-led government is trying to do and what the people expect them to do. While this is expected of any administration, the unity government could have done a better job at communicating with the people to bridge this gap.

“They [the government] are trying but the people want instant results. They have to find a mechanism to communicate with and reach all target groups to pass the right info on why the cost of living needs more time to be addressed rationally,” says USM’s Sivamurugan.

The government’s failure to communicate well what it intends to do has caused some reforms to be derailed.

In August, Kuala Lumpur Kepong Bhd (KLK) announced that it had entered into a strategic collaboration agreement with Boustead Holdings Bhd and Lembaga Tabung Angkatan Tentera (LTAT), which would see KLK acquiring a 33% stake and one share in Boustead Plantations Bhd for RM1.15 billion. However, PN MPs questioned the deal, saying it did not fit with the government’s aim of achieving the bumiputera corporate equity target of 30% by 2025 as underlined in the 12th Malaysia Plan.

To be fair, Minister of Defence Datuk Seri Mohamad Hasan did explain in parliament that as many as 15 plantation-linked companies had been invited to the competitive bidding process. However, the aborted deal led some to surmise that the government did not have the political will to implement reforms.

Gomez thinks the lack of reforms at government-linked companies (GLCs) does not inspire investor confidence. He points out that the largest corruption and financial scandals in Malaysia involved GLCs, including 1MDB, Lembaga Tabung Haji, the Federal Land Development Authority, Majlis Amanah Rakyat and LTAT itself with the littoral combat ships project.

“Apart from subsidy rationalisation, cleaning up the GLC ecosystem will provide better utilisation of those funds [within that ecosystem], but political appointees are still there. This does not inspire investor confidence,” he says.

Had the deal gone through, LTAT, which is facing issues with its underperforming investments and high concentrations in the ailing Boustead Group, could have received RM2.24 billion from the private sector — in this case, KLK — and would have been able to address its financing needs.

It was seen as a market-driven solution to reform an underperforming GLC. Instead, the government is now going to issue a guarantee for LTAT to take up RM2 billion worth of bank loans to restructure the Boustead Group.

Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz, in response to The Edge, highlights the need for the government to keep the public and taxpayers informed of what has been achieved. “Hence, Miti (Ministry of Investment, Trade and Industry) will begin to share its periodic ‘report card’ on all its key targets soon,” he says.

Zafrul notes several initiatives that must be expedited under his ministry’s purview, including guiding small and medium enterprises (SMEs) on embracing environmental, social and governance (ESG) considerations in their operations, as outlined by the Industry ESG Framework that was launched recently, as well as the establishment of electric vehicle charging stations nationwide.

“Consistent high-level multi-ministry, multi-agency stakeholder engagement is key to effecting the Madani government’s political will to get things done, and done quickly,” he adds.

Whether or not one year is enough time depends on how one utilises it. Consider the state elections that took place in August, just nine months after GE15. This was swiftly followed by the tabling of Budget 2024 in October. In between, the government announced multiple long-term plans, including the Madani Economy Framework, the National Energy Transition Roadmap and the National Industrial Master Plan to chart the way forward.

For the unity government under the leadership of Anwar, much has been done, but there is so much more that needs to be urgently addressed. And there is no better time to do so than now with there being a two-thirds majority in the Dewan Rakyat — which has not happened since 2008, when BN lost its supermajority for the first time in history.

At the same time, the election season is over and there is a two-year gap between now and the deadline for the next state election in Sabah and a little over four years until GE16, which must be held by Feb 17, 2028.

Given the supermajority and the anti-party-hopping law that prohibits MPs from jumping from one party to another, the government should have the political strength to implement all the necessary reforms to put the country back on the right track, both economically and socio­politically.

Will Anwar and his coalition partners seize the moment?

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