2014 Budget: Implications On Infrastructure Capex

BMI View: The recent unveiling of Malaysia's budget for 2014 presents some positive upside risk to our long-term forecasts for Malaysia's infrastructure and construction sector. This is because the government has taken decisive steps to address its fiscal problems and has maintained its development plans for the residential and infrastructure sectors. However, we continue to expect construction growth in Malaysia to experience a near-term slowdown given the completion of several large-scale infrastructure projects. In addition, excessive welfare spending is still detracting from public development spending.

On October 25 2013, Malaysian Prime Minister Najib Razak unveiled the country's budget for 2014. The focus of the budget was on addressing the country's persistent fiscal deficits and growing indebtedness and we believe the measures introduced in the budget (such as the implementation of the Goods and Services Tax [GST] and the reduction of the total subsidy bill) are decisive steps to bring the country's fiscal accounts back in order ( see '2014 Budget: A Step In The Right Direction', October 29 2013).

This is a positive development for Malaysia's construction sector over the long-term. Not only could it reduce the borrowing costs for state-linked companies over the coming years, but it could also allow the government and its state-linked companies to divert resources away from welfare subsidies and into more productive sectors to further economic and social development within the country.

Rising Public Spending
Malaysia - Public Sector Development Expenditure, MYRbn

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This article is tagged to:
Sector: Infrastructure
Geography: Malaysia

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