Axing China-backed projects will hurt construction, says economist

The East Coast Rail Link was among the mega projects recently cancelled by the government. (Bernama pic)

PETALING JAYA: An economist has supported Putrajaya’s decision to axe several major China-backed projects but warns that this will have a long-term impact on the construction sector.

Yeah Kim Leng, who lectures at Sunway University’s Business School, said the impact would be felt for some time given the magnitude of the cancelled projects.

“The cancellations will affect immediate capital investment and on-the-ground activities in construction,” he told FMT.

“The construction sector will be impacted due to the reduced demand for construction materials and ancillary services.”

He added however that this could be offset by ongoing civil engineering and construction activities in other sectors, including infrastructure, utilities, real estate and industrial building projects.

While cancelling the projects would shave off one or two percentage points in construction growth, he said, the overall sector would likely remain in expansionary mode.

He was commenting on Prime Minister Dr Mahathir Mohamad’s recent announcement that the East Coast Rail Link (ECRL), Multi-Product Pipeline (MPP) and Trans-Sabah Gas Pipeline (TSGP) projects would be scrapped.

Mahathir said the projects would be cancelled until Malaysia could afford them, adding that projects which were detrimental to the country’s interests would not be approved.

Yeah said Putrajaya had done the right thing in axing the projects as they could have caused the national debt to continue rising given the cost overruns which occurred in most mega projects.

“The priority now is to restore the country’s fiscal soundness, strengthen public finances and reduce the debt servicing burden.

“Cancelling these projects will ensure that our debt servicing level remains manageable, thereby strengthening Malaysia’s sovereign credit quality,” he said.