What Happened 

Malaysia's government is in turmoil, putting into question top-level political stability at a time when the country is already facing economic headwinds. On Feb. 24, Malaysian Prime Minister Mahathir Mohamad made the surprise move of tendering his resignation from both his post and from his chairmanship of the Malaysian United Indigenous Party (Bersatu). His exit came just after Bersatu's decision to leave the ruling Pakatan Harapan coalition and the subsequent resignation of 11 allied members of the People's Justice Party (PKR). Pakatan Harapan now stands at 102 seats, falling short of the 112 needed to form a government.

Mahathir's resignation follows a weekend of murky political maneuvering within his ruling bloc, in which factions attempted to form a "backdoor government" alongside members of the opposition United Malays National Organization (UMNO) and Parti Islam se-Malaysia. While much remains unknown, it appears Mahathir stepped down to prevent the move after initially favoring the creation of such a government. Mahathir has since been appointed as interim prime minister, meaning the country's lawmakers, factions and parties in Malaysia will now be left to form a new government or risk a snap election.

Why It Matters

While Pakatan Harapan's longevity has long been in question, the shock collapse of the coalition will send Malaysia's political scene reeling. Already the country has faced slackening domestic growth due to the darkening global trade picture, slowing domestic demand and the as-yet-unknown impacts of the regional COVID-19 outbreak. To get the economy back on track, the government was slated to unveil a stimulus package in the coming days, but it is now unclear whether such measures will be delayed. Sustained political uncertainty could also deter foreign investment at a critical time for the country.

It is unclear how easily the various parties can resolve this and reassemble into a coherent government. The stability of Malaysia's ruling coalition has long been questionable amid tensions between Mahathir and his agreed successor, Anwar Ibrahim, though both appear to be generally on the same page in wanting to keep the bloc together. The next steps, however, could go in several different directions.

The parliament could regroup around Mahathir and Anwar, cobbling together something resembling Pakatan Harapan as before. The parliament might also coalesce around the rival coalition that includes the opposition, perhaps even with Mahathir at the head. In either case, the support of ethnic minority parties from Sabah and Sarawak, as well as Islamist parties, will be critical. Appealing to ethnic minority parties could open up the possibility of a new government swinging in favor of energy policies that offer their respective regions a larger share of the royalties from natural gas extraction in their territories. Lastly, lawmakers could fail entirely to form a majority, sparking snap elections and the possible total turnover of the party balance, which could possibly see greater outreach to China by bringing the opposition UMNO back to the fore.

Background

Thorny issues within the ruling coalition have centered on the erstwhile rivalry between Mahathir and Anwar, who currently heads the largest party in Pakatan Harapan, the PKR. The bloc came together ahead of a surprise electoral win in 2018 that saw the takedown of the monolithic UMNO-led government. But the coalition was largely one of convenience and rested on the premise that Mahathir would eventually hand over power to Anwar. Factions within the bloc have opposed the handover and Mahathir has been lukewarm.