Impact of manifestos
Policy directions from political pledges have business and economic consequences.
EVER since Parliament was dissolved ahead of polling for the 14th general election (GE14), the combustible campaigning period has been mirrored by the volatile stock market.
The FBM KLCI hit an all-time high of 1,895 points on April 19, just a week after the dissolution of Parliament, but has since tracked lower as election day nears.
With the market edgy prior to polling day, UOB KayHian in a note on the election says that the election factor is a short-term sway phenomenon.
“While unexpected election results can be a significant market sway factor in the near term, such market reactions have been shortlived in the past.
“For example, when the Barisan Nasional’s control of parliamentary seats surprisingly slipped below two-thirds during GE12, the FBM KLCI plunged by as much as 9.5% in a day, triggering a trading circuit breaker at the worst level,” it says.
The research house notes that the FBM KLCI recouped most of the losses within a couple of weeks, once investors were assured of the continuity of political stability and business-friendly policies.
Both Barisan and Pakatan Harapan are mindful of maintaining business-friendly policies, it says. “Pakatan has on various occasions highlighted that it will generally uphold the sanctity of government contracts should it win the election. Eventually, equity markets will be dictated by external and domestic economic fundamentals and liquidity considerations.”
Market volatility and fierce campaigning do go hand-in-hand, given the uncertainties the outcome of the GE will bear on the stock market and businesses. Experts have said that the direction of the ringgit and also the economy will be determined after polling day as the country charts its political, along with economic and business, direction for the next five years.
“If Barisan wins, it will be seen as a vote for continuity. It will be business as usual, given the various plans and policies the Barisan government has laid out in the past and for the future,” says an economist.
“For businessmen, that mindset of what to expect is important for future planning and direction and they will like not to have any anxiety on what to expect in the future.”
The economic and business direction
The Barisan government, which has been in power since independence, has a track record of what it has done and will do for the country when it comes to business and economic planning.
The various Malaysia plans, budgets and policies announced over the decades have plotted the economic direction of the country. But in recent times, some will look at its manifesto as to the future policy direction the country will adopt should it retain power.
Policy promises are something more voters pay attention to these days, and judging by the manifestos of Barisan and even the Opposition, their documents are detailed with measures they will carry out in the impending five years.
For the Barisan government, the launch of its manifesto was done with much pomp, with it even detailing how it has fulfilled 99.4% of its 2013 manifesto pledges. Much of the focus of its latest manifesto is on the people, in order to lift their incomes and well-being.
These promises include raising the minimum wage in phases to at least RM1,500 within five years to setting up a Fair Works Commission to ensure that the salary levels of private-sector workers are more equitable.
BR1M recipients who enrol in higher education institutes will, meanwhile, receive a one-off assistance of RM1,500 plus there are a slew of measures for the country’s Felda settlers and their family members who are spread out over 317 settlements in 54 parliamentary seats nationwide in the manifesto.
Barisan is also promising to create three million jobs, and among the measures promised to help achieve this is by speeding up the development of the Malaysian Vision Valley, a 150,000ha area that is projected to create 1.3 million job opportunities.
On housing, the manifesto pledges a number of measures including setting up a special bank to facilitate loans for affordable and lowcost housing priced RM300,000 and below.
In addition, tax incentives or development funds will be provided to encourage banks and housing developers to offer rent-to-own schemes.
CIMB Research in a note on Barisan manifesto points out the key pledges which include low-income households, Felda settlers, females, the elderly and farmers.
It points out that the key promises include a top-up on the BR1M payments, raising the minimum wage to RM1,500 within five years, potential revisions in personal and corporate income taxes, expansion of affordable housing aid, special incentives and funds for Felda settlers, and subsidised public transport passes, broadband and other consumer goods/services.
It says that the additional BR1M payments will amount to at least RM3.71bil or 0.25% of gross domestic product (GDP) in 2018, which comes on top of the prior week’s civil servant pay hikes of RM1.46bil effective July 1.
“New spending commitments imply that the budget deficit is unlikely to improve significantly from the target of 2.8% of GDP despite windfalls from higher oil prices and GDP growth,” CIMB says.
It believes the market is expecting the ruling coalition, Barisan, to win the majority of the Parliament seats.
“We view Barisan’s widely expected win as neutral to positive for the market. The stock market’s performance post-election will depend on the degree of selling pressure during the campaigning period and the poll results.”
What the additional cash injection to households will mean is a lift in consumer spending. Consumption is a big driver of the economy and the BR1M payments have been one of the reasons for the steady performance of domestic demand.
“Furthermore, the economy will get a lift from the lift-off from projects that have already been identified for construction. The MRT, the high-speed rail between Kuala Lumpur and Singapore, and the construction of Bandar Malaysia will be some of the projects that will lift the construction sector and also the economy,” an economist says.
During the years when pledges from the past Barisan manifesto were being carried out, the economy had its ups and downs given the crunch felt by the collapse in crude oil prices.
The GDP, nonetheless, during the past five years has been positive, given the rollout of projects during that period. Growth came in at 5.9% in 2017 and was 4.2% in 2016, 5% in 2015, 6% in 2014 and 4.7% in 2013.
There have been concerns that spending pledges contained in the manifesto would leave a hole in government finances, but indicators so far do not point to that being a problem.
The government’s debt-to-GDP ratio has fallen below the self-prescribed ceiling of 55% to 51% and going by what the data shows in the first quarter, government finances seem to be holding up.
Nomura in a note says that Malaysia’s fiscal deficit was RM11.2bil in the first quarter of 2018, or 3.3% of GDP, which was below its forecast of 6%.
“This is smaller than any of the first-quarter deficits in the previous five years,” it says.
Nomura says revenue collection appears to have exceeded expectations significantly, surging by 16.5% year-on-year in the first quarter and was likely boosted by higher oil prices and possibly some lagged effect from strong GDP growth last year.
“However, more surprisingly, spending appears to have been quite restrained, falling by 2% despite the GE on May 9. Spending details have yet to be released but
such restraint may prove temporary with the government likely concentrating the use of its fiscal firepower closer to election day,” it says.
“This likely explains the government’s confidence in maintaining its 2018 deficit target of 2.8% of GDP despite announcements of additional cash handouts around the election.
“While we continue to expect government spending to spike in the second quarter, the surprising outturn in the first quarter suggests that fiscal tightening in the second half may be less severe than we currently forecast,” it says.