HSBC warns of higher deficit from Pakatan policies

Shelving or delaying the East Coast Rail Link project could affect short-term investment outlook in the country, says HSBC.

KUALA LUMPUR: There could be possible delays to large-scale infrastructure projects such as the East Coast Rail Link (ECRL) if the opposition coalition were to win the general election, according to HSBC Group.

The financial service giant said in a Global Research report that Pakatan Harapan’s policies could create a higher fiscal deficit in the short term if policy pledges were to be realised in the first 100 days of it taking power.

Pakatan Harapan’s manifesto had pledged to review mega projects, in particular those funded by China, estimated at US$38 billion (RM148 billion).

HSBC said that besides the possible delays in large-scale infrastructure projects, the review could weigh on the short-term investment outlook which could result in deceleration in private investment.

China’s foreign direct investment now comprises nearly half of the total FDI into Malaysia.

HSBC said its previous research reports had noted that Malaysia’s investment outlook “will be increasingly driven by foreign-financed infrastructure and other investment projects, partly due to the fiscal constraints faced by the government.”

Among the top five Chinese-backed projects in Malaysia under its Belt and Road Initiative are the ECRL (US$13 billion), Melaka Gateway (US$10.8 billion), Malaysia-China Kuantan Industrial Park in Pahang (US$3.8 billion), Robotic Future City in Johor (US$3.5 billion), and a steel plant in Sarawak (US$3.3 billion).

HSBC said the opposition’s manifesto “did not provide visibility on a balanced budget”.

It noted that the Barisan Nasional government had made progress in reducing budget deficits from 6.4% of gross domestic product in 2009 to a projected 2.8% in 2018.

This was in line with the government’s commitment of achieving a balanced budget, even though it had now been pushed back a few years from the initial target by 2020.

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