Malaysia budgeted on Friday for a fourth straight reduction in its deficit burden next year, but eased up on spending cuts to help the economy cope with a slowdown in exports, the country's lifeblood.
Prime Minister Abdullah Ahmad Badawi, under pressure to relax spending curbs after economic growth slowed to an estimated 5.0 percent this year, told parliament the government needed to relieve the burden on Malaysians given record-high oil prices.
"Given the impact of escalating international crude oil prices and domestic prices, the government continues to provide sales-tax exemption and subsidy for petrol, diesel and liquefied petroleum gas to reduce the burden of Malaysians," Abdullah said.
He announced a bonus and cost-of-living allowance for civil servants and a plan to raise 9 billion ringgit ($2.4 billion) from capital markets to help small and mid-sized firms and to boost lending by a state development bank.
The plan sees Malaysia relying on homespun growth to drive its economy next year as global growth cools. The government expects economic growth to pick up next year to 5.5 percent.
Export growth, led by electronics, is expected to be 11.1 percent in 2006, picking up from 9.9 percent this year but much lower than 2004's 17.3 percent growth.
"There was some concern that with growth expected to slow, they may actually take the opportunity to boost the fiscal expenditure side, but they don't seem to be doing that aggressively," said economist Sin Beng Ong of J.P. Morgan Chase.
The government has budgeted to spend, excluding contingency funds, 7.6 percent more in 2006 with revenue to grow nearly a tenth. Including contingency funds, spending will rise five percent.
The budget deficit is projected to fall to 3.5 percent of gross domestic product in 2006 from 3.8 percent this year.
Malaysia has run a fiscal shortfall since 1998, enabling it to weather the late-1990s Asian financial crisis and a recent slowdown in global demand for electronics, its main export.
BALANCED BUDGET RESISTED International rating agencies have warned that further fiscal loosening could hold back Malaysia's credit standing, which has risen in response to the deficit-reduction plan. But Malaysia has resisted aggressive attempts to balance its budget outright.
Growth next year is expected to be led by domestic demand, with Malaysian consumers stepping up their spending amid low interest rates and increasing price competition for services such as mobile telephony. The manufacturing sector, which makes up a third of Malaysian GDP, is forecast to grow 4.9 percent next year and the services sector 6.1 percent.
Construction is projected to grow 3.0 percent in 2006 after two years of recession. The politically sensitive sector is expected to be buoyed by new infrastructure projects under a five-year state development plan to begin next year.
Construction plays a key role in Malaysia's push for a fairer distribution of wealth for its ethnic-Malay majority, who own a minority of private wealth. State construction contracts have been the making of many Malay businessmen.
The budget also proposed an average 13 percent rise in tobacco taxes and an average increase in liquor prices of 9 percent, both smaller than market expectations.
Shares of British American Tobacco (BAT), Malaysia's biggest cigarette firm, rose 2.7 percent, but the wider market barely moved, closing up 0.36 percent.
The budget also allocated 400 million ringgit to fund agriculture ventures by state-linked firms, as part of efforts to revive the long-ignored countryside, home to most Malays.
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