Borrowing Cost: Malaysia Cancels $20bn China-Backed Rail Project

• Borrowing Cost: Malaysia Cancels $20bn China-Backed Rail Project

Rising borrowing cost has forced Malaysia to cancel the US$20 billion East Coast Rail Link project with China Communications Construction Co. Ltd, said Mohamed Azmin Ali, the country’s Economic Affairs Minister.

“The decision was taken because the cost of the project was too high and beyond the government’s financial capability,” Azmin told reporters in Kuala Lumpur. “If the project is not canceled, the government will have to bear the interest rate of about half a billion ringgit a year, which we can’t’ afford. Therefore, the project needs to be terminated without jeopardizing relations with China.”

Azmin added that China Communications Construction Co. will be compensated for the cancellation but he did not disclose the amount as that would be determined by the Finance Ministry. However, he promised the cost would not impact the country’s financial position.

The government had appointed Malaysia Rail Link to oversee the East Coast Rail project but with China Communications Construction as the main contractor. The project was expected to cost as much as 81 billion ringgit (US$19.6 billion).

While, rising interest rates, slowing global growth amid the uncertainty surrounding oil market are weighing on investment decisions in emerging economies, Malaysia rising debt profile and the scandal surrounding the 1MBD further worsen its economic outlook in 2019.

Malaysia’s total debt rose to 1 trillion ringgit (US$ 250 billion) or 80.3 percent of the GDP in 2018, according to the new Finance Minister, Lim Guan Eng.