Aaron Favila/AP
People at a restaurant watch as the former strongman Mahathir Mohamad is sworn in as the new Malaysian Prime Minister in Kuala Lumpur, Malaysia, on Thursday, May 10, 2018. Official results from Malaysia's national election show the opposition alliance led by the country's former authoritarian ruler Mahathir Mohamad has won a majority in parliament, ending the 60-year rule of the National Front.
- Malaysia's opposition party won the country's general election Wednesday.
- They defeated a coalition that has ruled Malaysia for more than six decades.
- A Moody's analyst said the election left Malaysia in "uncharted territory."
After a stunning political upset, the future of Malaysia's economy is anything but certain.
Ninety-two-year-old former prime minister Mahathir Muhamad on Wednesday led the country's opposition party to victory in a historic general election, defeating a coalition that has ruled Malaysia for more than six decades.
Some think Muhamad could eventually offer Malaysia, which has not seen a change in government since it gained independence from Britain in 1957, relief from major structural issues that have plagued the economy.
"His victory opens up the possibility that Malaysia will finally start to tackle some of the institutional problems that are holding back the country's long-run prospects," said analysts at Capital Economics.
Prime Minister Najib Razak has faced a spate of corruption allegations, including embezzling more than a billion dollars from a state development fund. It's likely the scandals at least partly propelled Mahathir, who has vowed to clean up the government, to victory.
But in the short- to medium-term, analysts are taking a more cautious tone. Moody's analyst Anushka Shah said the win left Malaysia in "uncharted territory" and expressed concern about policy proposals Muhamad floated on the campaign trail.
Muhamad has vowed to scrap the country's goods and services tax, which has been unpopular with voters but highly effective for government revenue. It raked in 42 billion ringgit last year - more than double that of the previous system.
At the same time, Muhamad has also made big spending promises, including a reintroduction of fuel subsidies. Those policies, if implemented as is, would be "credit negative," according to Shah.
Malaysia already has one of the highest levels of debt in the region, adding up to more than half of gross domestic product. And the deficit is likely to continue jumping under Muhamad, according to analysts.
"With spending likely to rise sharply this year, a big increase in the budget deficit looks inevitable," Capital Economics analysts said. "This would imply a sharp tightening of fiscal policy later in the forecast period."
For now, Malaysia's central bank is remaining calm. Bank Negara Malaysia officials left rates unchanged at 3.25% in a policy meeting hours after the election. They didn't mention the new government or take questions from reporters, according to Reuters.
The ringgit's one-month non-deliverable forwards fell 2.3% overnight. Analysts at Macquaries called it a "knee jerk sell-off" and said they expect pressure to fade.