KUALA LUMPUR, Aug 16  — The palace’s decision to appoint Tan Sri Muhyiddin Yassin as the caretaker Prime Minister after he tendered his resignation today would help maintain economic recovery efforts and the progress of the vaccination rollout that will be key in the country’s recovery from the pandemic.

Juwai IQI chief economist Shan Saeed said the decision may temporarily resolve heightened political issues, bringing an end to political uncertainty in the country, at least for the near term.

“In my opinion, economic recovery will take two or three quarters to come back on track. We have witnessed that export and trade figures continue to remain high around  27 per cent year-to-date despite domestic hiccups and external fragilities in the global economy.

“The gross domestic product (GDP) outlook remains challenging but fundamentals are solid. Once the economy gradually opens up and economic activities commence, we can expect momentum to be generated,” he told Bernama. 

Malaysia’s economy grew by 16.1 per cent in the second quarter (Q2 2021) year-on-year compared with -0.5 per cent in the first quarter of the year. The economy contracted by 17.1 per cent in Q2 last year as it took the brunt of the lockdown measures as COVID-19 hit the country.

In announcing the Q2 growth last week, Bank Negara Malaysia (BNM) also lowered its GDP projection for the year to between three and four per cent from six and seven per cent before, largely due to the re-imposition of nationwide COVID-19 containment measures following a spike in infection rates.

Shan said the Malaysian economy has shown resilience in the last 18 months with the government trying its best to maintain macro economic stability which is key to economic growth.

“Globally, all the governments have had to move cautiously, treading between economics and epidemiology. It’s not an easy time to lead the economy during a pandemic that has created havoc for the global economy. 

“The question is how soon the economy gets back to stabilisation mode and key to economic recovery is getting people vaccinated in order to achieve labour productivity and economic growth at the macro level. In my opinion, it’s good to maintain the status quo with the current government,” he added.

The Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah on Monday gave consent to Tan Sri Muhyiddin Yassin to act as caretaker Prime Minister until a new Prime Minister is appointed.

In a statement, Comptroller of the Royal Household for Istana Negara Datuk Ahmad Fadil Shamsuddin said the King made the decision after receiving the resignation letter from Tan Sri Muhyiddin and his entire Cabinet which took effect today.

“This is in line with Article 40(2)(a) and 43(2)(a) of the Federal Constitution which stated that the King shall first appoint as Prime Minister to preside over the Cabinet a member of Dewan Rakyat who in his judgment is likely to command the confidence of the majority of the members of that Dewan Rakyat,” it said.

Moody’s Investors Service’s vice-president and senior analyst Christian Fang said in a statement that “although a period of political uncertainty may occur in Malaysia given the resignation of Prime Minister Tan Sri Muhyiddin Yassin, we expect the country’s credible and effective institutions to limit the impact on its macroeconomic policies and credit profile as demonstrated over past episodes of abrupt political change.”

“The coronavirus pandemic remains the key risk in Malaysia, as the elevated number of new infections and ongoing restrictions – although less stringent compared to the second quarter of 2020 – will continue to weigh on the economic recovery this year,” he added. “As such, if fiscal deficits remain wide for some time because of further economic stimulus or weak revenue, resulting in a persistent rise in the government debt burden that fiscal authorities are unable to reverse, this has the potential to materially weaken Malaysia’s credit profile.”

Senior political and economic lecturer at Universiti Malaya Mohammad Tawfik Yaakub said the incoming new administration needs to strengthen the various economic stimulus measures, put aside political differences and also embark on a comprehensive economic recovery effort.

“The 12th Malaysia Plan needs the new leadership to prepare a clear strategy and a new plan towards economic recovery,” he said, warning that if the new government fails to provide a comprehensive strategy for the 12 Malaysia Plan, the country may not find its way out of the deteriorating economy, resulting in a chain reaction that will further undermine the country’s economic, social and political spheres in the future.


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