Sabah and Sarawak big winners in Budget 2022

Analysts are anticipating allocation of funds to Sabah and Sarawak during the annual budget to be tabled on Oct 29 to construct and upgrade water, electricity, roads, healthcare and educational facilities.

KUALA LUMPUR: Sabah and Sarawak emerge as likely big construction winners in the upcoming Budget 2022 as the government maintains its commitment under the 12th Malaysia Plan (12MP) to allocate additional budget to less developed states.

As such, analysts are anticipating allocation of funds to Sabah and Sarawak during the annual budget to be tabled on Oct 29 to construct and upgrade water, electricity, roads, healthcare and educational facilities.

Recall that one of the 12MP focuses is to reduce the gap among states.

According to the plan, the government will be prioritising less developed states and have earmarked 50% of the development expenditure over the five-year period towards six key rural states, namely, Kedah, Kelantan, Perlis, Sabah, Sarawak and Terengganu.

“Key projects include the construction of schools, hospitals, roads and industrial areas,” according to the plan.

However, given that the government’s fiscal position has been weakened by the prolonged Covid-19 pandemic, TA Securities believes that the government is unlikely to propose any new mega infrastructure projects in Budget 2022.

“As such, we do not anticipate Budget 2022 to generate much excitement in the construction sector, as the government is very likely to reiterate its commitment to completing all ongoing projects, such as the East Coast Rail Link, the Pan Borneo Highway, and the Central Spine Road.

“The government had already cancelled the KL-Singapore High Speed Rail at this point. We hope that the government will provide additional details about the Mass Rapid Transit 3 (MRT3) project in Budget 2022, as it is a shovel-ready, low-hanging fruit that has the potential to stimulate the economy,” the research house said in a report.

Notably, there has also been a delay in the implementation of planned projects given the many movement and manpower restrictions imposed to curb the spread of Covid-19 over the past year and a half.

To recap, Budget 2021 had proposed an allocation of RM69bil for development expenditure – higher than the RM56bil allocated under Budget 2020.

Budget 2021 had made several key construction-related references, including the RM15bil allocated to fund the ongoing Pan Borneo Highway, Gemas-JB Electrified Double Tracking Project and phase one of the Klang Valley Double Tracking Project.

Other projects that were highlighted were the construction of the JB-Singapore Rapid Transit System and MRT3 in the Klang Valley, as well as RM2.7bil that was budgeted for rural infrastructure development

At this juncture, TA is keeping its “neutral” call on the construction sector in anticipation that the government will not be embarking on any additional mega infrastructure projects in the near term apart from MRT3.

“According to our assessment, the MRT3 project will most likely be implemented through a public-private partnership model to ease fiscal burden,” it added.

The risks associated with its sector recommendation include rising raw material costs, increased competition and a slower-than-expected rollout of new mega infrastructure projects.