Restart infra projects to drive back economy: Economists

KUALA LUMPUR: Infrastructure projects should be recommenced full steam ahead to make up for the aggregate demand shortfall during the Movement Control Order (MCO) from March 18 to May 3.

Economists said the projects were one of the key growth catalysts for the economy this year. The construction sector was badly hit by Covid-19, prompting the government to enforce the MCO to contain the pandemic.

“Obviously, there is a need to look at the government’s financial capacity, but the funding of those projects has been planned even before the crisis.

“The continuation of these projects will boost investor’s confidence and add to the investment demand, while creating employment,” said Sunway University Business School economics Professor Dr Yeah Kim Leng.

The planned projects included Klang Valley Mass Rapid Transit Line 2 (MRT2), Light Rail Transit Line 3, East Coast Rail Link (ECRL) and Pan Borneo Highway (PBH).

Yeah said the government can make use of these infrastructure projects to crowd in private investment and related activities including supporting ancillary services.

“For instance, ECRL has various plans to establish industrial park and transit oriented development along this project. This is an opportunity to attract more foreign investors into the country,” he said.

Yeah said the government’s relaxation to contain the pandemic was a necessary step towards the recovery of the construction sector and effort to normalise the economic activities.

This will in turn support growth, given that the pandemic has resulted in severe demand cutback and sharp fall in production output.

“Most importantly, we should get all sectors of the economy to achieve positive contributions. The construction sector has a strong multiplier effect and linkages to the rest of the economy,” he said.

Yeah expects the contribution from the construction sector to the country’s gross domestic product (GDP) to shrink 15 per cent to RM61 billion this year from RM70.90 billion recorded in 2019. This is due to heightened uncertainties in the domestic and global environment.

He said the government had to consider smoothing out the funding requirement to ensure the country’s fiscal deficit and debt level did not exceed prudential limits.

“Fiscal deficit is expected to hover six to seven per cent this year. But as long as we can keep the financing to the level that do not result in projected fiscal deficit being exceeded too far, then it would not create any sovereign credit and debt sustainability concerns,” he said.

Yeah said the ability to repay the debts will not be a major concern as long as the economy can recover quickly with these infrastructure projects and other confidence-boosting measures.

Malaysia is facing labour shortage in (agriculture, manufacturing and construction) sectors as the government had temporarily halted foreign worker intake until December.

In response to labour shortage, he said construction players should not have to fully resume their activities but only rely on the ability of local workforce.

“This is to reduce reliance on foreign workers and sequence the project by maximising the utilisation of local workforce,” he said, adding that construction companies should also look at automation and enhancing their building methods to boost productivity.

Putra Business School business development manager Associate Professor Dr Ahmed Razman Abdul Latiff concurred that the government should proceed with the mega infrastructure project to create employment and business opportunities to local businesses.

“The government must also consider smart equity partnership with the private sector, rather than the traditional debt financing such as bond and bank loan to finance the project.

“This will reduce risk to government financial commitment if these projects are unable to achieve their desired return on investments once they start operating,” he told the New Straits Times.

He said the construction sector was expected to grow positively this year, despite a RM15.35 billion contraction recorded in the first quarter of 2020.

“We forecast GDP from construction to increase above RM16 billion in the fourth quarter of this year, with around 4.5 per cent contribution to overall annual GDP,” he said.

He said the government also needed to consider imposing higher minimum wage for local workers in the construction sector or allowing hiring foreign workers temporarily on project basis, while focusing more effort on automation.

The efforts could potentially address the labour shortage issue in the country and reduce losses resulted from the delay in construction projects.

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