Malaysia's construction industry growth to slow 4.3% in 2019

The government has been actively suspending infra projects to shed debt.

Malaysia’s construction sector growth is forecasted to slow from 4.5% to 4.3% in 2019 as its newly established Pakatan Harapan coalition continues to take several measures to reduce government debt and expenditure by suspending large-scale infrastructure projects across the country, a report by Fitch Solutions revealed.

Following the suspension of the East Coast Rail Link and the Singapore-Kuala Lumpur high-speed rail project, the government continued its austerity measures by suspending the construction of two oil and gas pipeline project which cost more than $970m (MYR4b) each.

But amidst the suspension of several megaprojects, Fitch Solutions noted that the government is continuing with its efforts to develop rural areas with a total of $225.17 (MYR926m) set aside to upgrade rural roads and bridges. Additionally, a further $168.75m (MYR694m) and $179.45 (MYR738m) will be spent on expanding rural electricity and water supply respectively, according to Malaysian finance minister Lim Guan Eng in his Budget 2019 speech.

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“Such a budget mirrors that of the previous year, where a similar amount was budgeted for rural road, bridges, electricity and water infrastructure development,” Fitch Solutions highlighted. “Less developed states such as Perlis, Kedah, Sabah and Kelantan stand to gain from the government’s renewed push to develop rural infrastructure.”

Meanwhile, some of the suspended projects are expected to be re-implemented if deals can be struck at a lower cost given the potential economic benefits such infrastructure can generate.

The report revealed how some large-scale projects have gone ahead with reduced budgets, such as the construction for the 37km LRT3 project with a 47% reduced budget from $7.68b (MYR31.6b) to $4.04b (MYR16.6b). Similarly, costs for the MRT2 project decreased 22% from $9.56b (MYR39.3b) to $7.42b (MYR30.5b).

Other factors which may trigger a revival of these projects include stronger fiscal health, lower government debt to gross domestic product (GDP) and the adoption of public private partnerships (PPPs) to attract private capital, Fitch Solutions cited.