Anwar’s Year at the Helm: Economic Leadership in Turbulent Times

Anwar Ibrahim’s popularity as Malaysia’s Prime Minister has been sliding since he assumed office in November 2022. According to surveys by the Merdeka Center, Anwar’s approval rating — based on the percentage of respondents who are satisfied with his performance as prime minister — dropped from 68 per cent in December 2022 to 50 per cent in October 2023. The same surveys provided a clue: about 78 per cent of the respondents indicated economic concerns as the top problem facing the country. The key economic concerns include unfavourable economic conditions (28.3 per cent), high cost of living (22.4 per cent), and the weakening of the ringgit (1.8 per cent).

Is Anwar to be blamed entirely for the decline in his approval rating? Not really; to be fair, Anwar inherited an economy that was already weakening. The economy started to slow down after the third quarter of 2022. This trend persisted until the first quarter of 2023 (Figure 1). The pace of economic growth picked up in the six months between April and September 2023 before declining in the last quarter of 2023.

Roller Coaster Growth

Figure 1. Malaysia – Real GDP Growth (quarter-over-quarter)

Could growth have been faster during the first year of Anwar’s leadership? Possibly; but his government needed some time to get settled in. The political transition in October 2022 affected the government’s ability to stabilise the economy via fiscal stimulus in the first six months of Anwar’s tenure. The federal government’s budget for 2023 was first tabled in Parliament on 7 October 2022 but was not ratified due to the legislature’s dissolution three days later to pave the way for the November 2022 general elections. Subsequently, an interim budget covering about 50 per cent of the annual operating expenditure was passed in December 2022, followed by a revised budget in February 2023. The impact of these disruptions and delays can be seen in the decline in the contribution of government expenditures to economic growth between October 2022 and March 2023 (Figure 2). One likely consequence of the delays was the back-loading of government expenditures, which increased the contribution of government expenditures to growth after March 2023. This is reflected in the second quarter of 2023. 

Government Spending Kicked in Later

Figure 2. Sectoral Sources of Real GFP Growth (quarter-over-quarter)

The back-loading of the government’s expenditures did have an unexpected silver lining as it helped cushion the Malaysian economy from a weakened export sector and a slowdown in consumption in the fourth quarter of 2023. The export sector is important as it provides about 40 per cent of the jobs in Malaysia. The cyclical downturn in the export sector — especially in electrical and electronics products — dampened economic growth in the first six months of 2023 and the last quarter of 2023. Private consumption, which is by far the largest component of total expenditure in the economy, was also relatively weak in 2023. One possible explanation is the erosion of household income due to the cumulative effects of inflationary pressures. The inflation rate for food and beverages exceeded five per cent for almost a year between June 2022 and May 2023 (Figure 3). Although the inflation rate declined during the second half of the Anwar Administration’s first year, the ratchet effect of price increases would have continued to impact households, particularly those from the lower and middle-income brackets.

Heading South

Figure 3. Inflation

To its credit, the Anwar administration struggled with economic policy-making in its first nine months, as the economic environment in 2023 proved to be challenging. Early attempts were made in January 2023 (Malaysia Madani) and July 2023 (Madani Economy) to present broad policy frameworks based on “Madani”: a concept underpinned by six core values, namely, sustainability, care and compassion, respect, innovation, prosperity and trust. Subsequent months witnessed the unveiling of two major policies — the National Energy Transition Roadmap (NETR) on 29 August 2023 and the New Industrial Master Plan 2030 (NIMP2030) on 1 September 2023. Both policies were initiated by previous administrations but completed and refined under the Anwar administration. These policies reflect some resilience on the part of the bureaucracy amidst the frequent changes in government in the country since 2018. Whilst these policies provide clarity to the private sector in terms of the government’s medium to long-term priorities of the government, they have not stirred the public imagination. The fiscal constraints faced by the government today preclude the implementation of attention-grabbing and resource-intensive grandiose projects and radical policy shifts that were implemented in the 1980s and 1990s under Mahathir’s rule, such as Putrajaya, Proton, Kuala Lumpur International Airport, Sepang International Circuit and privatisation.

The fiscal constraints facing the Anwar Administration are reflected in the federal budget for 2024 that was tabled on 13 October 2023. Although Budget 2024 is the government’s second budget, it is the first one that has had sufficient time to comprehensively draft from scratch. Budget 2024 focuses on strengthening the country’s public finances by increasing tax revenues and improving the efficacy of government expenditures. These have involved raising taxes (service tax, capital gains tax and luxury goods tax) and rationalising various subsidy programmes (electricity, eggs, chicken, petrol and gas). These are not exactly popular policies by any means. However, given that the next general election is only due in 2027, the current government can afford to undertake reforms that will put Malaysia on a more fiscally sustainable path and a higher growth trajectory.

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