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FACTBOX-Key political risks to watch in Malaysia

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(Globalpost/GlobalPost)

By Siva Sithraputhran and Stuart Grudgings

KUALA LUMPUR, Feb 6 (Reuters) - Malaysian Prime Minister Najib Razak could call national elections anytime between now and April.

The ruling coalition, in power since the country became independent from Britain in 1957, is expected to win a tight race but the opposition is well placed to build on its gains in 2008 and undermine Najib's standing.

An opinion poll released in January by a respected university put Najib's Barisan Nasional coalition ahead of the opposition by 5 percentage points, with 21 percent of those surveyed still undecided.

Najib, meanwhile, was a single percentage point ahead of opposition leader Anwar Ibrahim.

Najib wants to convince Malaysians that his reform efforts are working as he tries to reverse the ruling coalition's worst election showing in 2008, but he has all but lost the support of ethnic Chinese, who account for about 25 percent of the population. That leaves Najib counting on the majority-Malay vote to ensure success.

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Following is a summary of key Malaysia risks to watch:

ELECTION APPROACHING

Najib hopes Malaysia's strong economic performance and his government's series of handouts to poorer Malaysians will shore up support for the ruling coalition.

The economy grew at a strong annual pace of 5.2 percent in the third quarter, the central bank said, making it one of Asia's fastest-growing - a key plank of Najib's election bid.

But an ongoing investigation in Sabah state may dent Najib's chances after several testimonies suggested that previous Barisan Nasional governments gave illegal immigrants Malaysian citizenship in order to gain an edge in elections.

Consistent calls from reform groups for a speedy cleanup of the imperfect electoral roll could also harm Najib's bid for victory.

The election promises to be the most fiercely contested in Malaysia's history. Last July, Najib - facing growing public demand for greater political and social freedoms - said he would scrap the colonial-era Sedition Act, which has been used over the years to silence dissent.

Firm domestic demand has helped cushion Malaysia's economy from the worst of the slowdown in global activity, and the government and state-linked companies continue to spend on big projects.

At the same time, the government's heavy spending and cash handouts are sharpening concerns over Malaysia's chronic budget deficit. While ratings agencies have raised concerns about Malaysia's public finances and its reliance on oil revenue, the budget gap is still some distance from crisis point.

What to watch:

- Any rise in tensions between the government and civil reforms groups as well as racial and religious relations.

- Najib is trying to reach out to non-Muslim minorities who make up about 40 percent of the population. Last year, he set up diplomatic ties with the Vatican and relaxed restrictions on travel to Israel in a bid to win Christian support.

ECONOMIC REFORM

Najib pledged to reform a decades-old affirmative action policy favouring ethnic Malays and replace it with a "New Economic Model" to promote greater competition and boost domestic investment that has lagged in recent years.

The Prime Minister's stance has since softened for fear of alienating conservatives among the ethnic Malays who make up about 60 percent of the electorate. Investors and the opposition complain that the race-based policy has been widely abused, fostering cronyism.

The government is implementing the Economic Transformation Program, a $444 billion initiative aimed at propelling the country to developed nation status by 2020.

The government says the ETP has helped it turn the corner after years of sub-par investment, pointing to a 19 percent jump in private investment last year. Critics say the ETP is overly reliant on government funding, which could further strain a budget deficit that hit 5.4 percent in 2011.

The central bank has kept its benchmark interest rate on hold at 3 percent since May 2011, a position it maintained in January, the tenth consecutive policy meeting without change.

Many analysts believe Najib is holding off politically sensitive cuts to the fuel subsidies he once described as economic "opium" until after the election. That, along with a new goods and services tax, is seen as crucial for reducing the deficit and the government's dependence on oil for income.

What to watch:

- Can Malaysia maintain robust domestic demand and local investment?

- Will government-linked companies keep spending ahead of the election? (Editing by Daniel Magnowski)

http://www.globalpost.com/dispatch/news/thomson-reuters/130206/factbox-key-political-risks-watch-malaysia