POLITICS in the country is expected to blunt economic growth for the next decade, predicts Fitch Solutions.

In a forecast comment, the financial analyst predicted real GDP growth to be at just 3.4% over the next 10 years compared to 6.4% over the past decade.

It said the constant power shifts as Malaysia transitions away from single-party rule are among the political issues that will weigh down on the economy.

“We expect power to change hands often, leading to questionable policy continuity and stalled reform momentum,” it said, citing the February change in government as proof of the potential for upheaval.

The two-year-old Pakatan Harapan (PH) government collapsed on February 24 resulting in the new Perikatan Nasional (PN) administration helmed by Prime Minister Muhyiddin Yassin.

“While a successful transition to a more stable multi-party or two-party system present in more mature democracies could eventually reap dividends for Malaysia, the uncertainty in the interim is likely to be a negative factor counted against it by potential investors,” it added.

It said the country’s current position would put it at an disadvantage in attracting foreign direct investments from countries looking to shift away from China.

Fitch predicted that politicians would likely resort to populist measures to shore up support.

“(This) could lead to a worsening business environment over time as more protectionist measures are implemented,” it said, citing Pakatan Harapan policies to hike the minimum wage, penalise the hiring of foreign workers, and subsidising the hiring of locals as examples.

It added that political defections could lead to a resurgence of corruption and graft, and even bloated governments due to political patronage.

“Against this backdrop, key reforms that could unlock further growth potential in Malaysia are likely to be put off.

“A chief example would be affirmative action policies favouring the ethnic Malay population, which is likely to continue to cause a ‘brain drain’ where talented non-Malay members of the population seek opportunities overseas,” it said, adding that an uneven playing field for government procurement was also an issue.

“These race-based policies will be very difficult to address and look set to slow the pace of economic development for the foreseeable future,” it added. – September 30, 2020.