THE revived East Coast Rail Link (ECRL) will see the long-term stimulation of the economy, despite fears its price tag will stretch the government’s balance sheet, said economists.

Last week, Putrajaya ended months of uncertainty and speculation when it announced that the China-backed rail project would continue, albeit with a route shortened by 40km and a correspondingly lower cost.

However, the revised price of RM44 billion for Phases 1 and 2 of ECRL – down RM21.5 billion from the original RM65.5 billion – continues to cause concern about whether Malaysia’s already-stressed finances would be further weakened.

While the debt-servicing burden will likely increase with the new deal, the lower cost and longer loan tenure make the project more affordable, said economics Professor Dr Yeah Kim Leng of Sunway University Business School.

“The key affordability metric is the extent to which the development spillovers of the project generate economic growth that, in turn, enhances the government’s revenue generation and repayment capability,” he told The Malaysian Insight.

More importantly, he said, the immediate effect of ECRL’s reboot is that it will pave the way for public spending to rise to the tune of billions a year, in tandem with the project’s progress.

“The key beneficiaries will be the construction sector and industries linked to construction activities. Owners of land acquired by the government for the project will receive monetary benefit in terms of compensation.”

Socio-Economic Research Centre executive director Lee Heng Guie said the project presents increased job availability, citing the new deal that states there must be 40% participation of local firms for civil works, up from 30% under the previous contract.

The debt will fall under government guarantee, hence, it is unlikely to have a direct impact on the balance sheet, he said.

He added that spending will be spread out over the duration of construction, which is slated for completion in December 2026.

Project owner Malaysia Rail Link Sdn Bhd said about 85% of financing will come from China’s Exim Bank, and the remainder will likely be sourced locally.

Yeah said the substantial reduction in total cost has boosted the project’s socio-economic viability.

However, he warned that ECRL’s financial commitment may limit spending in other areas, especially on mega infrastructure projects such as the postponed high-speed rail linking Kuala Lumpur and Singapore.

He said the government can hit its fiscal deficit target by spending more effectively, diversifying and expanding revenue sources, and disposing of non-strategic assets.

Lee said he expects Putrajaya to continue its spending patterns, but exercising more prudence in terms of cost and necessity.

The RM54.7 billion development expenditure allocated under Budget 2019 is lower than previous years’ budgets, but still considered high given Malaysia’s fiscal health, he said.

“The government will continue to spend, and they will make sure that the cost aspect is under control, to make sure that it is value for money and the cost is not inflated.

“This will be the guiding principle.” – April 21, 2019.