March 10, 2020 Malaysia Politics PN Coalition Government Cabinet unveiled Analysts PM Tan Sri Muhyiddin Yassin unveiled his Cabinet with no DPM post and replaced by Senior Ministers, and appointed a banker as Finance Minister. Suhaimi Ilias UMNO and PAS Presidents are not in the lineup. Cabinet formation (603) 2297 8682 reduces implementation risk to stimulus package. Immediate challenges [email protected] are navigating politics and managing economy amid risk of a no Dr Zamros Dzulkafli confidence motion at Parliament sitting on 18 May-23 June 2020 and (603) 2082 6818 economic downsides as crude oil price slump adds to the COVID-19 [email protected] outbreak. Ramesh Lankanathan No DPM but Senior Ministers instead; larger Cabinet (603) 2297 8685 reflecting coalition makeup; and a banker as [email protected] Finance Minister William Poh Chee Keong Against the long-standing tradition, there is no Deputy PM post in this (603) 2297 8683 Cabinet. The Constitution also makes no provision on DPM appointment. [email protected] ECONOMICS Instead, Senior Minister status are assigned to the Cabinet posts in charge of 1) International Trade & Industry, 2) Defence, 3) Works, and 4) Education portfolios. These Senior Minister posts are distributed between what we see as key representations in the Perikatan Nasional (PN) coalition i.e. former PKR Deputy President turned independent Datuk Seri Azmin Ali (International Trade & Industry), UMNO Vice President Datuk Seri Ismail Sabri Yaakob (Defence), Gabungan Parti Sarawak (GPS) Chief Whip Datuk Seri Fadillah Yusof (Works) and PM’s party Parti Pribumi Malaysia Bersatu Malaysia (Bersatu) Supreme Council member Dr Mohd Radzi Md Jidin (Education). They will coordinate Cabinet agendas on economy, infrastructure development, education, security – underscoring areas of policy priorities - as well as chair Cabinet meetings in the PM absence. UMNO President Dato’ Seri Ahmad Zahid Hamidi and PAS President Dato’ Seri Abdul Hadi Awang are not in the new Cabinet lineup. Another notable Cabinet announcement by the PM is the appointment of Tengku Dato’ Sri Zafrul Tengku Abdul Aziz, the now former Group CEO of CIMB Group Holdings Bhd and CEO of CIMB Bank Bhd as Finance Minister. He will be appointed as Senator. He is not the first banker to be appointed Senator and Finance Minister. Former central banker Tan Sri Nor Mohamed Yakcop was appointed as Senator and Second Finance Minister (Finance Minister back then was PM Tun Abdullah Ahmad Badawi) in Mar 2004. In addition, two other former bankers turned Senator and Cabinent members were Maybank’s top executives Tan Sri Amirsham Aziz and Tan Sri Abdul Wahid Omar as Ministers at PM’s Department. The Cabinet size now is larger at 32 vs 28 previously, reflecting the current Government that is a coalition of more parties, resulting in a Cabinet that is made up of Bersatu (8), Barisan Nasional (11 i.e. 9 UMNO, 1 MCA, 1 MIC), PAS (3), Sarawak-based GPS (4), Sabah-based party (1), Independent (3 – essentially former PKR MPs) and Senators (2). Previous Pakatan Harapan (PH) Government’s Cabinet of 28 was made up of PKR (7), Bersatu (6), DAP (6), Amanah (5), Warisan (3) and MAP (1). In addition, the four additional Cabinet posts is due to splitting the (i) Education portfolio into two - Education and Higher Education; and (ii) Energy, Science, Technology, Environment & Climate Change portfolio into two - Science, Technology & Innovation and Environment; as well as (iii) increasing the number of Minister at PM’s Department posts to 5 from 3. Details on the Cabinet are in Fig 1-2. THIS REPORT HAS BEEN PREPARED BY MAYBANK INVESTMENT BANK BERHAD PP16832/01/2013 (031128) SEE PAGE 7 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Economics Research Immediate challenges: Navigating the politics, managing the economy This year’s first Parliament session was rescheduled from 9 Mar – 16 Apr 2020 to 18 May – 23 June 2020, where there is the prospect of PH putting in a no confidence motion on PM. According to an online news report, PM briefed 115 MPs under his PN coalition on his Cabinet lineup, suggesting the numbers to survive any no confidence vote. Politics is also about perception, and the Government/Cabinet has to manage and deal with the general views that the PN coalition is “Malay/Bumiputera-centric” in terms of composition and policies. At the very least, Cabinet formation reduces implementation risk of the MYR20b Economic Stimulus Package announced on 27 Feb 2020 (Responding to COVID-19’s Downsides Despite Political Limbo, 27 Feb 2020) by former PM Tun Dr Mahathir to deal with the economic downsides of the COVID-19 outbreak that has turned global in recent weeks from what was initially a China-centric outbreak. Consequently, with the Federal Government’s MYR3.5b portion of the Economic Stimulus Package and the downward revision to this year’s economic growth forecast to 3.2%-4.2% from 4.8% on 27 Feb, 2020 budget deficit to GDP ratio is now expected at 3.4% (2019: 3.4%) vs the original 3.2% target which was based on USD62/bbl assumption (2020YTD: USD58/bbl; 2019: USD64/bbl). However, fresh economic challenge and risk have emerged following the slump in crude oil price in recent days. Brent crude tumbled to USD32/bbl yesterday from this year’s high of USD69/bbl on 6 Jan 2020 following the apparent collapse of OPEC+ grouping that has been in place since 2016 to support crude oil price via crude oil production cuts as the two key producers, Saudi Arabia and Russia, could not agree on the proposal to cut output by 1.5m bpd next month until end- 2020. Our sensitivity analysis showed a USD10/bbl drop in crude oil annual average price will: reduce Government’s oil-related annual revenue by MYR7b (i.e. MYR4b in tax revenues and petroleum royalties, and MYR3b in Petronas normal dividend); raise budget deficit to GDP ratio by 0.45ppt; and cut current account surplus by 0.15ppt. To recap, Budget 2016 (when Brent crude slumped to USD26/bbl on 20 Jan 2016) was recalibrated via MYR8.0b-MYR9.5b spending cuts to keep budget deficit to GDP ratio target at 3.1% (Budget 2016 Recalibrated_29 Jan 2016) as revenues were estimated to fall by MYR7.8b-MYR9.4b on the back of downward revisions in 2016 real GDP growth forecast to 4.0%-4.5% from 4.0%-4.5%, and in average crude oil price assumption to USD30-35/bbl from USD48/bbl. Actual economic growth, average crude oil price and budget deficit to GDP ratio that year were 4.4%, USD44/bbl (-15.7% YoY) and 3.1% respectively. In addition, the Cabinet/Government needs to address and provide clarity on the policy uncertainties and regulatory overhangs facing a number of key sectors/industries in the economy “inherited” from previous PH Government (Fig 3). March 10, 2020 2 Economics Research Figure 1: Malaysian Government Cabinet Portfolio Ministers & Their Parties under Perikatan Previous Ministers & Their Parties under Nasional (PN) Government Pakatan Harapan (PH) Government 1. Prime Minister Tan Sri Muhyiddin Yassin (Bersatu) Tun Dr Mahathir Mohamad (Bersatu) Deputy Prime Minister Replaced by Senior Ministers in charge of Dato’ Seri Dr Wan Azizah Wan Ismail (PKR) Finance, International Trade & Industry, Defence, Works & Education portfolios 2. International Trade & Industry (Senior Dato’ Seri Mohamed Azmin Ali (Independent) Datuk Ignatius Darell Leiking (Warisan) Minister) 3. Defence (Senior Minister) Dato’ Sri Ismail Sabri Yaakob (UMNO) Mohamad Sabu (Amanah) 4. Works (Senior Minister) Dato’ Sri Fadillah Yusof (GPS) Baru Bian (PKR) 5. Education (Senior Minister) Dr. Mohd Radzi Md Jidin (Bersatu) Dr Maszlee Malik (Bersatu) / Tun Dr Mahathir (Bersatu) * 6. Finance Tengku Dato’ Sri Zafrul Tengku Abdul Aziz (CIMB Lim Guan Eng (DAP) Group CEO, to be appointed as Senator) 7. Minister at PM’s Department (Economy) – Dato’ Sri Mustapa Mohamed (Bersatu) Dato’ Seri Mohamed Azmin Ali (PKR) - Economic replace Economic Affairs portfolio Affairs 8 Minister at PM’s Department (Special Dato’ Seri Mohd Redzuan Md Yusof (Bersatu) NA Functions) 9. Minister at PM’s Department (Law & Dato’ Takiyuddin Hassan (PAS) Datuk Liew Vui Keong (Warisan) - Judicial Affairs Parliament) 10. Minister at PM’s Department (Religious Dato’ Seri Dr Zulkifli Mohamad Al-Bakri (to be Mujahid Yusof Rawa (Amanah) Affairs) appointed as Senator) 11. Minister at PM’s Department (Sabah & Datuk Seri Panglima Maximus Johnity Ongkili NA Sarawak Affairs) (PBS) 12. Transport Datuk Seri Ir. Dr Wee Ka Siong (MCA) Anthony Loke (DAP) 13. Science, Technology & Innovation Khairy Jamaluddin (UMNO) Yeo Bee Yin (DAP) - Energy, Science, Technology, 14. Environment Dato’ Tuan Ibrahim Tuan Man (PAS) Environment & Climate Change 15. Human Resources Datuk Seri M. Saravanan (MIC) M. Kula Segaran (DAP) 16. Federal Territories Tan Sri Annuar Musa (UMNO) Khalid Abdul Samad (Amanah) 17. Women & Family Datuk Seri Rina Mohd Harun (Bersatu) Datuk Seri Dr Wan Azizah Wan Ismail (PKR) - Women, Family & Community Development 18. Higher Education Dato’ Dr Noraini Ahmad (UMNO) NA (previously under Education portfolio) 19. Energy & Natural Resources Dato’ Dr Shamsul Anuar Nasarah (UMNO) Dato’ Dr Xavier Jayakumar (PKR) - Water, Land & Natural Resources; Yeo Bee Yin (DAP) - Energy, Science, Technology, Environment & Climate Change 20. Home Datuk Seri Hamzah Zainuddin (Bersatu) Tan Sri Muhyiddin Yassin (Bersatu) 21. Health Dato’ Sri Dr Adham Baba (UMNO) Datuk Seri Dr Dzulkefly Ahmad (Amanah) 22. Agriculture & Food Industry Datuk Seri Dr. Ronald Kiandee (Bersatu) Datuk Seri Salahuddin Ayub (Amanah) 23. Rural Development Datuk Dr Abdul Latiff Ahmad (Bersatu) Datuk Seri Rina Mohd Harun (Bersatu) 24. Foreign Dato’ Seri Hishammuddin Tun Hussein (UMNO) Dato’ Saifuddin Abdullah (PKR) 25. Domestic Trade & Consumer Affairs Datuk Alexander Nanta Linggi (GPS) Datuk Seri Saifuddin Nasution Ismail (PKR) 26.