Malaysian Finance Minister Tengku Zafrul Abdul Aziz, who retained the post in the new government announced Friday by Prime Minister Ismail Sabri Yaakob, has his work cut out for him.
In October, Zafrul is set to unveil the 2022 federal budget to what may be the most divided parliament in Malaysia’s history. The spending plan will need to address an economy weakened by protracted lockdowns and a raging Covid outbreak, amid steep financial constraints and a deficit target that was already revised higher twice this year.
At stake is the fate of the days-old administration he just joined: Per convention, Ismail must resign if the budget fails to get majority support in parliament. At the same time, ratings companies will be watching keenly for any departure from the country’s fiscal consolidation path.
The decision to retain Zafrul as finance minister “should be welcomed by the market,” said Wellian Wiranto, an economist at Oversea Chinese Banking Corp. “He is known as a technocrat by and large, and his reappointment signals continuity in his role in carrying out the ongoing fiscal plans and to shepherd the new budget through the parliament.”
The ringgit was up 0.1 percent to 4.1915 per dollar as of 1:30 p.m. on Thursday. The yield on the benchmark 10-year government bond dropped two basis points to 3.24 percent, while the main stock index was up 0.3 percent at the midday break.
Zafrul, 48, has more than a year’s experience as finance minister in the previous government. The decision to bring him back points to policy continuity from the Muhyiddin Yassin administration.
“You need somebody who is already quite well-versed with the ministry” to prepare the budget by the October deadline, said Oh Ei Sun, a senior fellow at the Singapore Institute of International Affairs. However, it’s not clear if the choice will inspire investor confidence.
“This is a cabinet that retains largely the same faces, and they had policies which obviously failed during the last administration,” Oh said. “Why would they be able to formulate new policies that would succeed in tackling the pandemic and reviving the economy?”
Lowered forecast
Two weeks ago Zafrul affirmed the central bank’s 2021 growth forecast for Malaysia at 3 percent-4 percent, the second downward revision as the country grapples with protracted lockdowns and virus flare-ups. The outlook is expected to improve in the fourth quarter as more sectors reopen and the vaccination program advances, he said in the August 13 statement.
“The government’s current priority is to protect lives from the threat of Covid-19 and ensure the country’s economic growth prospects remain strong in the medium to longer term,” Zafrul said at the time. Government efforts will be guided by the National Recovery Plan—an evolving blueprint to exit the pandemic—underpinned by prudent financial management, he added.
“Ismail Sabri Yaakob was sworn in Saturday as the third prime minister in 18 months. The immediate economic outlook is probably beyond his control—hinging on the extent of damage from Covid-19. With the domestic outbreak yet to crest and more trading partners combating their own outbreaks, another contraction in GDP this quarter remains likely,” Bloomberg economists said. Bloomberg News