This article first appeared in The Edge Financial Daily on September 6, 2018

KUALA LUMPUR: The cohesiveness of the Malaysian government will remain a “prime interest” for investors, said S&P Global Ratings in a report published yesterday.

According to the report, a stable policy environment is one important factor that affects Malaysian sovereign creditworthiness; the other is future fiscal performance.

“Political stability is an important question, since this is the first time that the Pakatan Harapan constituent parties are governing together,” said S&P credit analyst Kim Eng Tan. “The ability of these parties to formulate and implement policies in a timely and effective manner is also untested.”

The coalition passed a big test in agreeing on crucial political appointments, albeit with a delay. However, S&P believes the bigger test of leadership transition lies ahead.

The transition to the next prime minister and the schedule for that remains, noted the rating agency.

Malaysia’s mature bureaucracy is likely to be a key stabiliser in any potential scenario of political instability, and it has helped to keep the economy performing well through the major shocks of the past two decades. The coalition government’s focus on governance is likely to take a while to benefit the policy and business environments in the country.

The big moves on this front have been the government’s decision to change the reporting structure of several important agencies such as the Malaysian Anti-Corruption Commission, the Election Commission, and the national audit department.

While investors in Malaysia have been used to decades of relative political stability and generally predictable policy environment, S&P said a prolonged period of political uncertainty could see a slowdown in new investment even if there is no major shift in policy direction.