How will Malaysia's elections shocker affect bilateral ties with neighbour Singapore?

Analysts are divided on the impact of the new leadership, but some said key infrastructure policies need to be watched.

Former Malaysian prime minister Mahathir Mohamad’s coalition party, Pakatan Harapan (PH), delivered an unexpected win in Malaysia’s general election, scoring a simple majority with 113 seats in parliament. The results have broken the 61-year rule of the Barisan Nasional party and could now break the previous characteristics of the country's policies and relationships, especially as Mohamad has campaigned for reform and a new government under his rule.

Singapore has immediately responded to the outcome of its neighbour's elections. Prime minister Lee Hsien Loong wrote in a Facebook post that they are now awaiting the formation of a new government.

"Singapore has enjoyed good relations and close cooperation with Malaysia for many years, with successive Malaysian leaders. We look forward to developing an equally constructive relationship with the next Malaysian government, and to work with it to take our bilateral ties forward and benefit both our peoples," he wrote.

Natixis Asia Pacific chief economist Alicia Garcia Herrero told Singapore Business Review that the election result should, on the short term, be positive in terms of Malaysia-Singapore relations but its implications down the road may be less clear for Singapore. "To be more specific, I take the view that Malaysia will move into a reform/modernization path under the leadership of Anwar Ibrahim. This also means that, at some point, Malaysia may graduate from its middle-income trap," she said.

"Whilst it is always good to have a richer neighbour, Singapore will have to start thinking of a different economic relation with Malaysia, since the gain will no longer come with Malaysia’s malaise in terms of offshore wealth management and the like," the economist added.

Meanwhile, Prakash Sakpal, economist, Asia at ING, does not see any significant change in bilateral relations between two countries. "Although previous Mahathir era is characterized as controversial for bilateral relations, significant economic ties between two countries developed over the years are unlikely to be severed under the new administration. More importantly, main political agenda for this election was more of domestic-centric economic issues, not international relations," he said.

However, some key economic policies bridging the two countries need to be watched. 

Sakpal said that the likelihood of the Mohamad administration re-evaluating new economic projects undertaken by Najib administration with foreign participation will be something to keep an eye going forward. "This might as well bring projects undertaken with Singapore under the scope, e.g. KL-Singapore high-speed rail, or Iskandar Development. However, considering a high level of transparency on the Singapore side there is nothing to worry on this front," the analyst added.

Oxford Economics lead Asia economist Sian Ferrer also noted that during the campaign, Mohamad promised to review foreign investment contracts including infrastructure projects. "Whilst this does raise some uncertainty as to whether or not the KL-Singapore high-speed speed rail link will go ahead we are optimistic. The link will improve the connectivity between Malaysia and Singapore and Mr Mahathir did stress that any infrastructure projects or other FDI projects need to benefit Malaysians," he concluded.