KUALA LUMPUR: Economists and market observers have lauded the government’s decision to cancel the East Coast Rail Link (ECRL) and the Trans-Sabah Gas Pipeline projects, which would have cost over tens of billions ringgit.
Asian Strategy & Leadership Institute (ASLI) Centre of Public Policy Studies chairman Tan Sri Ramon V. Navaratnam said it was testament to Malaysia’s Prime Minister Tun Dr. Mahathir’s power of persuation to get the Chinese government to agree on the project cancellations.
“It is wonderful that the Chinese government sees Dr Mahathir’s point of views. He must have strong persuasive powers,” he told New Straits TImes, recently.
Ramon said the Chinese government must have recognised that the projects were not viable and would result in a financial strain to the government. Hence, they should be cancelled.
“If the project were viable and sustainable, I’m sure the government would have gone ahead with them,” he added.
Sunway University Business School economics professor Dr Yeah Kim Leng said the cancellation would allow the government to reduce its long-term debt level, noting that it was a positive development in Malaysia’s debt management.
“Therefore, it should regain some confidence in the country’s macro and debt-management, given these projects are controversial, it is best to cancel them,” he said.
Yeah added the government can revisit these projects in the future once the country’s financial capability improves.
“The projects cancellations should augur well for Malaysia’s debt sustainability. It is also the positive sign that the Chinese government’s thinking is in line and supportive of Malaysia’s current position,” he said.
Yeah pointed out the agreement to mutually cancel the projects signalled resilient bilateral relations between Malaysia and China.
“We expect bilateral relations to normalise and more Chinese foreign direct investments (FDIs) in other sectors including industrial and manufacturing,” he said.
Ramon said the Malaysian government should also review hefty compensation from the projects cancellation.
“If the contract was wrongly done, then it must be rectified. The question of compensation should not arise unless there was actual expenditure incurred.
“Above all, this is an initiative to re-instate good governance while ensuring the Malaysia’s financial systems continue to be stable,” he said.
Yeah said the compensation for the project cancellations are unavoidable short-term losses.
“There are some short-term losses by the country in return for debt containment,” Yeah said, adding it was important for the government to ensure the compensation is justified.
“The compensation can be built into our annual budget in terms of a one-off outlay, similar to other supplementary budget that the government normally undertakes to offset any increase in expenditure.
“Privatising or selling off some of the government’s assets could be one way to help lighten the country’s debt burden,” he said.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the decision was very much in line with the constraint the country faces.
“It is necessary for the government to prioritise its projects. Otherwise, the government finances would be troubled in the long run,” he said.
AmBank group chief economist and head of research Dr Anthony Dass said the government will have to pick and choose the projects that generates the best multiplier or returns to the economy.
“While rail connectivity to the East Coast will spur investment and economic growth in the region, and the trans Sabah gas pipeline will help to deliver gas to electricity-starved areas, given the huge debt the country is saddled with, the government will have to look at the ‘cost-benefits’ as well as the urgency of these projects to our economy,” he added.
Anthony said the government should shift its focus to urban transportation, upgrading of water supply and better flood mitigation.
“The project cancellation will not stop investments from China but there will be more diligent reviews by both parties prior to investment commitments,” he said.
Anthony believes the government can seek amicable solution on the compensation through negotiations.
MIDF Research chief economist Dr Kamaruddin Mohd Nor said the project cancellations would not have a drastic impact on the country's infrastructure development.
“The decision was taken after detail consideration of both costs and benefits of the projects. The current fiscal situation of the government and the projects' long term sustainability and financial obligations are among key areas that lead to the decision,” he said.