Malaysia Drops Public Projects as Surging Costs Swell Budget
Malaysia's government shelved at least $1.1 billion in public works projects as soaring commodity prices forced it to spend more on food security and raised construction costs, swelling its five-year development budget.
Projects including a monorail and highway in northern Penang state will be scrapped, Sulaiman Mahbob, director general of the government's Economic Planning Unit, said in a press briefing in Putrajaya yesterday. The Southeast Asian nation will spend 230 billion ringgit ($70 billion) on roads, bridges and other works during the 2006-to-2010 period, 15 percent more than it planned earlier.
The changes “take into account additional development requirements and the increase in construction-related materials cost,'' Prime Minister Abdullah Ahmad Badawi told parliament in Kuala Lumpur today in a review of the five-year plan released today. “Development projects will also be reprioritized.''
Surging commodity prices have pushed up building costs and increased government subsidies on food and fuel, leaving Asia's governments with less to spend on public-funded bridges, roads and other works. That's limiting Abdullah's ability to regain support after his coalition lost its two-thirds parliamentary majority in elections this year.
“Given the rising project costs as well as ballooning fuel subsidies, there is a need to reprioritize the projects,'' said Lee Heng Guie, an economist at CIMB Investment Bank Bhd. in Kuala Lumpur. “They will focus on all the people-centric projects'' including food security, rural roads and housing.
Penang Monorail
Scomi Engineering Bhd. had planned to bid for the 2 billion ringgit monorail project on Penang island, a popular tourist destination. Penang, Abdullah's home, was one of five states that came under opposition control after the March 8 elections.
Malaysian Resources Corp. and Melewar Industrial Group Bhd. were also potential bidders for the monorail job cash advance loans.
Other projects put on hold include a public park in the capital Kuala Lumpur, bringing the total value of projects shelved to at least 3.5 billion ringgit.
Instead, the government will spend an additional 1 billion ringgit each for Sarawak and Sabah states on Borneo island, which provided Abdullah's coalition with the parliamentary seats it needed to retain a simple majority in the lawmaking body.
An additional 10 billion ringgit will be spent on five special investment zones Abdullah has introduced across the country. Some 3 billion ringgit will go to food security programs, and 3 billion ringgit to a strategic investment fund for the trade ministry. Spending on low-cost housing, rural infrastructure and public transport will increase.
Political Pressure
Projects that will proceed include an electrified double- tracking rail development in the north of the Malaysian peninsula led by Gamuda Bhd. and MMC Corp., and a similar line being built by Ircon International Ltd. in the south.
Growth in Southeast Asia's third-largest economy may average 6 percent a year from 2006 to 2010, Abdullah said, maintaining the estimate given at the start of the five-year plan in 2006.
Achieving the targeted growth rate would be difficult, said Lee at CIMB.
“We are in trying circumstances,'' he said. Growth may ease from the average 6.1 percent pace of the past two years, as higher domestic fuel prices and “political headwinds'' add to external risks, he added.
The government's budget deficit is forecast to narrow to 3.2 percent of gross domestic product by 2010 from 3.6 percent in 2005, compared with the 3.4 percent estimated earlier. The deficit will total 21.6 billion ringgit this year, or about 3.1 percent of gross domestic product, the central bank said on March 26.