Govt to stop new mega infra projects

by **Cals** Mon 02 Sep 2013, 12:54

Govt to stop new mega infra projects
Business & Markets 2013
Written by Isabelle Francis of theedgemalaysia.com
Monday, 02 September 2013 12:18

KUALA LUMPUR: The government, which is facing shrinking current account surplus and growing contingent liabilities, has decided not to roll out and fund new mega infrastructure projects, according to officials familiar with the public policy.

“Any new projects will not be approved unless they are undertaken fully by the private sector... there won’t be any PFI (private finance initiative) awards as well,” said a source.
The sources said apart from approved infrastructure projects, it was unlikely that the government would fully fund new mega jobs that would add to the country’s debt burden. The government, in future, will also also stop providing guarantee to back debts secured for new infrastructure projects.

Already, Idris Jala (pic), minister in the Prime Minister’s Department has been quoted by the media as saying that public building projects with high imported content are most likely to be rescheduled.

There are indications that the government is slowing down on big budget projects, such as rescheduling the high-speed rail (HSR) between Malaysia and Singapore as well as the refinery and petrochemical integrated development (Rapid) project in Pengerang, southern Johor.

Petroliam Nasional Bhd (Petronas) had last month announced that the Rapid project would be pushed forward to 2017 from late 2016 initially.

Some 33 new projects, with an investment value of RM7.04 billion, were launched in the first half of this year, according to the Performance Management and Delivery Unit (Pemandu). This brings the total projects under the Economic Transformation Programme (ETP) to 182 with an investment value of RM218.3 billion since the programme was launched in late 2010.

Nonetheless, there is easily another RM36 billion worth of projects that were announced but not included in the ETP list.

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These include the RM26 billion Tun Razak Exchange, the multi-billion ringgit Bandar Malaysia project in Sungai Besi, RM5 billion Pudu Jail redevelopment project, RM5 billion Warisan Merdeka skyscraper project and the massive development of the Rubber Research Institute land in Sungai Buloh.

Analysts said the government has little choice but to take on this balancing act given the rising contingent liabilities and the country’s current account surplus, which has shrunk to almost RM2.6 billion in the second quarter of the year (2Q13) from RM8.7 billion ringgit in the preceding quarter amid the slump on exports.

The federal government is looking to switch to accrual accounting from cash accounting by 2015 in an attempt to consolidate its assets and liabilities.

An auditor said if proper accounting is used, the government will be forced to reveal its actual borrowings. This is because in cash accounting, there is no compulsion to reveal all transactions.

The federal government’s debts plus guarantees soared to 69% of GDP in 1Q13 — some economists expect this to increase further.

In absolute terms, government guarantees on private debt reached RM147.8 billion in 1Q13, up from RM143.1 billion at end of 2012.

Economists, including RAM Holdings Bhd group chief economist Dr Yeah Kim Leng, view the tightening of the federal government’s belt positively.

Yeah believes that infrastructure spending should not exceed 5% of the GDP and can be further spaced out without jeorpadising Malaysia’s competitiveness.

“The key now is to shift towards private investment, creating an investment climate and strengthening the foundation that includes ensuring that the cost of doing business is low and facilitating a conducive environment.”

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The site for the RM26 billion Tun Razak Exchange in Kuala Lumpur. The government has decided not to roll out and fund new mega infrastructure projects, according to sources familiar with the public policy.

Yeah said the total investment numbers in the first half is an indication that Malaysia is shifting towards getting more private investment rather than largely depending on oil and gas tax revenues.

“If the (federal) government sustains this shift, at the same time cutting public spending, it should not affect growth,” he added.
As a whole, total investment approved by the Malaysian Investment Development Authority rose by 30.3% year-on-year (y-o-y) in the first half (1H) of 2013 driven by a pick up in investment approvals in the services and primary sectors.
Analysts attribute the growth to the implementation of ETP projects as well as economic corridors, namely Iskandar Malaysia in Johore and the Sarawak Corridor of Renewal Energy (Score).

Yeah said the introduction of the Goods Services Tax (GST), expected to be proposed in the 2014 Budget, will help broaden the government revenue base as it helps to enhance the efficiency of the tax system.

“We are expecting the 2014 Budget to be tight, at the same time with measures in place to reduce the burden on the lower income group. Those who are better off will bear the tax without affecting their lifestyle,” he said.

This article first appeared in The Edge Financial Daily, on September 02, 2013.