KUALA LUMPUR, Jan 21 — Fitch Solutions has downgraded its growth outlook for Malaysia following a slew of project suspensions and postponements by the federal government last year.
A press release from its unit, Fitch Solutions Macro Research said that they were subduing the already downward outlook of the country’s construction industry by about 0.2 per cent for this year and next year.
But the research unit also pointed out that despite the suspension of several megaprojects, the government has affirmed its commitment to develop rural areas with infrastructure projects.
This, it added with support the construction industry.
“Following the suspension of the East Coast Rail Link and the postponement of the Singapore-Kuala Lumpur High-Speed Rail Project, the Malaysian government has continued its austerity measures by suspending the construction of two oil and gas pipelines that costs more than RM4 billion each as well as a RM3.2 billion pipeline that was due to link a plant in Johor to Malacca.
“In light of these suspensions, we have made a further downward revision of the growth of Malaysia’s construction industry in 2019 and 2020 from 4.5 per cent to 4.3 per cent, and 4.6 per cent to 4.3 per cent respectively to reflect a short-term slowdown in growth,” it said.
Finance Minister Lim Guan Eng stated in his Budget 2019 speech that a total of RM926 million will be spent on upgrading rural roads and bridges, and a further RM694 million and RM738 million will be spent on expanding the rural electricity and water supply, respectively.
“Such a budget allocation mirrors that of the previous year, where a similar amount was budgeted for rural road, bridges, electricity and water infrastructure development. Rural Malaysia currently suffers from poor accessibility and inadequate power capacity that is an impediment to economic development.
“Less developed states such as Perlis, Kedah, Sabah and Kelantan stand to gain from the government’s renewed push to develop rural infrastructure,” it said.
The research firm also said that they have not ruled out the possible re-implementation of cancelled projects, if the government is able to renegotiate projects at a lower cost.
“Given the potential economic benefits that large-scale infrastructure projects generate, we expect some of the suspended projects to be re-implemented if deals can be struck at a lower cost.
“With the Malaysian government debt-to-GDP ratio increasing steadily over the past few years, the Pakatan Harapan government stated its intention to reduce the amount of debt in the government books. As such, costly infrastructure projects have been suspended even though they have the potential to spur growth and to have a multiplier effect on the economy,” it said.
It said certain large-scale infrastructure projects have gone ahead with reduced budgets such as the 37km LRT3 project which was reduced from RM31.6 billion to RM16.6 billion, representing a 47 per cent cost reduction, while costs for the MRT2 project decreased by 22 percent from RM39.3 billion to RM30.5 billion.
“We therefore believe that some of these suspended projects will eventually be constructed if the government is able to negotiate more cost-effective terms.
“As the renegotiation process for large, complex projects typically take a longer duration, we reiterate our forecast for the Malaysian construction industry to be slightly dampened in the short term, and will readjust our forecasts when projects are implemented again,” it said.
Other factors that may trigger a revival of these projects include stronger fiscal health, lower government debt-to-GDP and the adoption of PPPs to attract private capital.
