KUALA LUMPUR -- Malaysian Prime Minister Muhyiddin Yassin began his tenure on March 1. Arguably, the timing could not be worse.
Muhyiddin takes office with the new coronavirus having rapidly spread to more than 100 countries and regions, a development that is adding to the pressure on the Malaysian economy, which had already slowed in the fourth quarter of 2019.
To make matters worse, more than a third of Muhyiddin's cabinet ministers announced on Tuesday were politicians who served in former Prime Minister Najib Razak's scandal-tainted government, raising doubts about Muhyiddin's ability to deal with the economic slowdown and a sudden spike in coronavirus infections.
The legitimacy of his government, which came about not through an election but through a parliamentary coup, is being questioned. Local media have dubbed it a "backdoor government," while Muhyiddin's predecessor, Mahathir Mohamad, called Muhyiddin a traitor for walking away from the Alliance of Hope to team up with his political rivals.
The two weeks of political turmoil that began on Feb. 24 have shaken market confidence in Malaysia. The stock market saw a net outflow of foreign funds totaling $583.4 million over that period, more than in Indonesia and the Philippines but less than in Thailand, according to MIDF Research.
The Malaysian central bank cut its policy rate for second time in a row on March 3 to 2.5%, its first back-to-back cut since 2009, warning of a "resurgence in financial market volatility" as a result of the coronavirus outbreak.
The ongoing political uncertainty "must have been [factored] into [the bank's] decision to cut the rate as well, given the inadvertent hit to business and consumer confidence when the tim[ing] could not have been worse," said Wellian Wiranto, an economist with OCBC Bank in Singapore.
The interest rate cut triggered a downgrade in Malaysia's the growth forecast for 2020. Capital Economics now predicts growth of 2.5%, down from 3.0% previously, lower than Malaysia's official forecast of 3.2% to 4.2%.
Fitch Solutions expects the central bank to further loosen monetary policy. It foresees at least three more cuts this year to 1.75%, given the lack of a fiscal response due to the political crisis. "Muhyiddin's administration is likely to come under intense pressure over the coming months, not least because it may not have the support of an absolute majority in parliament," Fitch wrote on March 4.
But for now the 72-year-old Muhyiddin appears to have strengthened his grip, backed by a cabinet stuffed with ethnic Malays. That was done to please supporters, who complained that the previous government did not do enough to help ethnic Malays, the majority in the multiethnic country.
"The purpose of a Malay-centric cabinet is ... political survival," said James Chin, a governance expert at the University of Tasmania. "The lack of diversity will not be a problem because Muhyiddin needs to send a signal to the Malay polity that it is clearly a Malay government, as opposed to Mahathir's Alliance of Hope." With 70 ministers and deputy ministers on the team, Muhyiddin will need another 50 lawmakers to ensure a majority in the event of a vote of no-confidence when the lower house convenes on May 19, Chin added.
With political uncertainty receding, risk consultancy Eurasia Group expects the new government to roll out an additional stimulus package, given the growing economic impact of the coronavirus. The number of coronavirus patients in Malaysia jumped to 117 on Monday after hovering below 30 for weeks until March 3, raising concerns over the country's health care system in the absence of strong leadership.
"However, the [government's] coffers are not full, and falling oil prices will add to the new administration's headaches, further limiting the fiscal room to maneuver, considering that Malaysia is a net oil and gas exporter," said Singapore-based Peter Mumford, who heads Eurasia's operations in Southeast and South Asia.
In addition to its economic problems, Malaysia's international standing has taken a beating in the wake of the political crisis, after the Malaysian monarch intervened by appointing Muhyiddin as leader. The U.K.'s Guardian newspaper, in an editorial published March 3, asserted that the Malaysian king had overturned a democratic election that had challenged a corrupt old order. The Malaysian palace rejected that claim.
In any case, Muhyiddin, his fellow defectors and rivals-turned-allies who formed a new government on Tuesday have effectively replaced their democratically elected predecessors, who had been in office for nearly two years. The euphoria many felt at the wind of change blowing through Malaysian politics has vanished. In its place is an air of uncertainty, as Mahathir and his supporters show no sign giving up the struggle to turn the tables again.
Malaysia's neighbors are watching developments closely. Singapore and China are some of a handful countries that sent Muhyiddin a congratulatory message.
"I suspect Beijing is happy with the change of government," said Eurasia's Mumford. "Many of the cabinet ministers are alumni of the Najib-led government, with which China formed strong relations."
Mumford also expressed concern over Mahathir's next move, possible public protests and how long Muhyiddin's new partners in the ruling coalition will remain satisfied with the allocation of power among the various factions.
Eurasia has assessed Malaysia's short-term trajectory as negative, highlighting the impact of political factors on the country's business environment.