KUALA LUMPUR (June 23): Fitch Solutions Country Risk and Industry Research said it continues to anticipate an early general election in Malaysia as its core view, and expects the election to be held likely in the second half of 2022, well ahead of the September 2023 deadline.

In a report on Wednesday (June 22), the firm said this decision follows another decisive victory for the Barisan Nasional (BN) coalition, led by Umno, in the Johor state by-election on March 12.

It said if Umno and BN secures a stronger majority, this would benefit the policymaking process in Malaysia, though risks remain tilted to the downside from an internal schism within the party.

Fitch Solutions said it sees a somewhat less favourable few months ahead for the policymaking process as the government’s attention is likely to be focused on campaigning, but there is potential upside over the medium term if BN manages to secure a stronger majority and forms the next government.

It said this would potentially put an end to the series of unstable governments with thin majorities that had stalled the political process since 2020.

“We have maintained our short-term political risk index score for Malaysia at 64.4 out of 100 to reflect the uncertainty associated with policymaking and policy continuity.

“Once the election has passed, we may revise these subcomponent scores to reflect the new political dynamics,” it said.

Fitch Solutions said while BN and Umno appear to be in a dominant position, the coalition’s victory in the prospective general election is far from guaranteed and smooth.

“We continue to highlight risks of schism within Umno, which appears to have been divided into two main factions: those supporting members of the current government led by Prime Minister Datuk Seri Ismail Sabri Yaakob and those who support former prime minister Datuk Seri Najib Razak (2009-2018) and his allies, including Umno president Datuk Seri Dr Ahmad Zahid Hamidi.

“We see risks of disagreements over which faction will lead Umno and BN into the election and over the eventual make-up of a BN Cabinet should they win,” it said.

Fitch Solutions said over the medium term, regardless of which Umno faction forms the prospective government, it expects reform momentum to remain slow.

It said factional disputes are likely to continue in the background, while the fact remains that the Malaysian electoral landscape is now much more competitive than when BN was dominant during the first 61 years of Malaysia’s independence and reforms.

“For instance, reforms that materially expand the tax base and increase competitiveness are likely to prove unpopular and hence remain unlikely to be implemented,” it said.