The country is not letting up on infrastructure development, and rural areas look set to win, say analysts at Fitch Solutions Macro Research.
An expansionary full-year 2020 budget was presented by the Malaysian Ministry of Finance on 11 October, with planned spending on various forms of infrastructure remaining strong.
Similar to previous budgets, development of rural Malaysia emerged as an important theme in the FY20 budget, with Sabah and Sarawak in East Malaysia in focus.
The government also said investments will be needed to promote environmental sustainability in light of the recent water pollution incidents in the state of Johor, as well as the persistent occurrence of flash floods throughout the country.
Overall, the budget will support the growth of the Malaysian construction sector in the short term. Rural Malaysia will be the biggest winner, with strong financial support for many projects in regions such as Sabah and Sarawak.
Planned government expenditures in water and transport infrastructure are in line with our positive outlook for these sectors.
We have previously highlighted the strong growth potential of eastern Malaysia’s road infrastructure sector and with the announced expenditures in the latest budget, projects such as the Pan Borneo Highway will proceed with fewer hiccups thanks to the government’s financial support.
Table by Fitch Solutions Macro Research
Besides transport infrastructure, the government’s allocation of over MYR580mn to rural water projects, again, supports our view that investments into Malaysia’s water sector will primarily be driven by the public sector.
Sabah and Sarawak will be main beneficiaries, with approximately 80% of the MYR580mn to be spent on projects in these two states.
Additionally, a total of MYR443mn will be spent on flood mitigation projects and a further MYR150mn on the maintenance of existing flood retention ponds. Once again, such expenditures on anti-flood infrastructure are in line with our views, and we expect these type of investments to continue over the next decade.
Other initiatives supported by government funding as reflected in FY20 budget include:
- MYR500mn on rural electrification which would benefit more than 30,000 rural homes, mostly in Sabah and Sarawak
- MYR1.1bn to support projects for the development of economic corridors to boost its competitiveness
- MYR1.6bn will be spent on the construction of new hospitals, as well as the upgrading and expansion of existing ones. A further MYR319mn has been allocated for the construction of other healthcare facilities such as health and dental clinics.
What’s Next?
Public funding for infrastructure suggests strong growth for the Malaysian construction sector. However, attracting private capital through public-private partnerships will remain a challenge to the government and we will watch for developments in the PPP space that could boost the growth of the infrastructure sector.
We await the news on several suspended projects, with a decision on the suspended Johor-Singapore Rail Transit System expected by the end of October 2019.
Top image: Malaysia’s finance minister Lim Guan Eng addresses a business audience at the Budget 2020 Forum in Kuala Lumpur, 14 October 2019 (Malaysian Ministry of Finance/Twitter)
