Anwar Ibrahim is Setting the Stage for Malaysia's Economic Boom

“Anwar Ibrahim’s leadership is steering Malaysia through unprecedented economic challenges,” says Benjamin Laker, a leadership professor at Henley Business School, University of Reading. Laker is known for his research and keynote speeches on the societal impact of leadership. According to his article in Forbes, when Anwar Ibrahim took office as Malaysia’s Prime Minister in December 2022, he faced an economy grappling with the aftershocks of a global pandemic and enduring structural weaknesses. Described by The Economist as “the most enigmatic figure in South-East Asian politics for half a century,” Anwar Ibrahim inherited these challenges at a critical juncture.

From Laker’s perspective, Malaysia’s early deindustrialisation, marked by the manufacturing sector’s dwindling contribution to GDP and employment at lower income levels than expected, led to economic stagnation. Additionally, a brain drain exacerbated the domestic talent shortage, further hampered by systemic corruption and a burgeoning national debt crisis.

Fiscal Reforms and Cost Optimisation

Laker highlights that, to address these issues, Anwar Ibrahim introduced several fiscal reforms. New taxes, including a higher Service Tax and a Capital Gains Tax, were projected to generate additional revenue. The Progressive Wage Policy (PWP) was also implemented to align wage growth with productivity, aiming to combat wage stagnation and improve living standards. This policy ensures that as productivity rises, so do wages, enhancing workers’ purchasing power and overall economic well-being.

On the cost optimisation front, Anwar’s administration undertook the politically sensitive task of rationalising subsidies and managing civil service costs. A significant move was transitioning new civil servants to an Employees Provident Fund (EPF) scheme, projected to reduce long-term pension costs and shift future pension liabilities to a more sustainable model.

Additionally, the enactment of the Public Finance and Fiscal Responsibility (FRA) Act institutionalised prudent fiscal management with targets for a 3% fiscal deficit and a 60% debt-to-GDP ratio. This legislative framework aims to ensure that Malaysia’s fiscal policies remain sustainable, providing a stable economic environment conducive to growth.

Investment and Economic Growth

As Laker sees it, to boost investment, the administration expedited Foreign Direct Investment (FDI) approvals and improved the ease of doing business. Significant investments were attracted in high-value sectors such as semiconductor fabrication and digital technology. By focusing on sectors with high growth potential and technological advancement, Malaysia aims to climb the global value chain and foster a more dynamic and competitive economy. Measures to enhance investment quality focus on labour productivity through automation and increased spending on research and development. These initiatives aim to create an innovation-driven economy, reducing reliance on low-skilled labour and enhancing overall productivity.

These reforms have significant implications for both Malaysia and the broader Asian region. Nonetheless, challenges persist. Recently, Malaysia’s attempt to retarget petrol subsidies faced setbacks following a significant loss in a state by-election over the weekend. Voters in Sungai Bakap expressed their discontent, with the opposition party PAS retaining the rural seat in northern Penang state by a substantial majority of 4,200 votes. This defeat, driven by high living costs linked to other recent subsidy cuts, highlighted public dissatisfaction with Anwar’s economic policies.

Mixed Electoral Outcomes

Laker believes that while losing the state seat, Anwar’s coalition achieved a victory in a federal seat. In the recent Kuala Kubu Bharu elections, the Democratic Action Party (DAP) of Anwar’s coalition won by a 3,869-vote majority, polling 14,000 votes against the opposition Perikatan Nasional (PN) coalition’s Khairul Azhari Saut, who received 10,131 votes.

These mixed outcomes reflect the complex and evolving political landscape in Malaysia. On one hand, dissatisfaction with certain economic policies has led to setbacks at the state level; on the other hand, successes in federal elections suggest that Anwar’s coalition still retains substantial support in other areas.

The Road Ahead

These electoral results shows the delicate balance the administration of Anwar Ibrahim must maintain between implementing necessary economic reforms and managing public discontent. Laker maintains that while the introduction of new taxes, rationalisation of subsidies, and investment in high-value sectors are critical steps towards economic rejuvenation, the impact on the populace—particularly in terms of living costs—cannot be underestimated. Anwar’s ability to navigate these challenges will be crucial in determining the long-term success of his economic policies and, by extension, Malaysia’s economic future.

Laker argues that as Malaysia stands at this crossroads, the coming years will test not only Anwar’s political acumen but also the resilience of a nation striving to reclaim its economic vitality and global standing. The world watches closely—will Malaysia’s journey set a precedent for other nations navigating similar post-pandemic recoveries and structural transformations? The answer remains to be seen, but one thing is certain: the leadership of Anwar Ibrahim will be a critical determinant in this unfolding narrative.