His Barisan Nasional coalition, which has ruled Malaysia for 55 years, must face a national ballot by June but is also under pressure to rein in public debt as rating agencies warn of downgrades.

To bolster the country's export-oriented economy and beef up political support, Najib embarked on a spending spree including 3.0 billion ringgit ($979 million) in direct cash payments, tax cuts and bonuses of 1.5 month's salary for 1.3 million civil servants.

Najib told parliament the government will repeat this year's 500 ringgit given to households earning up to 3,000 ringgit a month and also hand out 250 ringgit to unmarried people aged 21 and above earning 2,000 or less per month.

The prime minister also expanded stimulus measures to support the economy in his last budget before polls, where he will face a tough test against Anwar Ibrahim, who leads the three-party opposition Pakatan Rakyat alliance.

Najib, who is also finance minister, announced a one percentage point cut in personal income tax for those earning up to 50,000 ringgit in chargeable income per year and 2.0 billion ringgit to support sustainable green projects.

"The 2013 budget will focus on improving the quality of life of the people, ensuring sustainable growth, spending prudently and reducing the fiscal deficit with the overall objective of prioritising the well being of the people," he said.

But Najib said there would be a modest cut in sugar subsidy to reduce government expenses and vowed that government debt will not exceed 55 percent of GDP.

Standard & Poor's and Fitch recently warned that rising fiscal pressures in Southeast Asia's third largest economy could lead to a downgrade of its credit rating.

The treasury's budget deficit is projected to be 4.5 percent this year, while public debt has reached 53.7 percent of gross domestic product this year.

But Malaysia plans to reduce its budget shortfall next year by generating more revenue and spending less, leading to a lower fiscal deficit of four percent as the government targets a three percent gap by 2005.

The government predicts the economy will expand 4.5 percent to 5.5 percent in 2013 from about five percent in 2012.

It grew 5.4 percent in the last quarter even as exports fell for the first time in three months in July as Europe's debt woes hurt demand.

Malaysia saw 5.1 percent growth in 2011. The budget is the last before Najib, who came to power in April 2009, leads his coalition into pivotal national elections for the first time as a vote must be held by June next year.

A once-insignificant opposition scored unprecedented gains in 2008 polls that saw the long-ruling Barisan Nasional lose its customary two-thirds parliamentary majority, and Najib being elevated to the premiership in 2009 ostensibly to win back voters.

But Najib's popularity slipped five percentage points to 64 percent in June after tens of thousands joined a rally for electoral reforms in April.

The ruling coalition has governed Muslim-majority Malaysia since independence in 1957, but an opposition alliance has capitalised on concerns over corruption, economic worries and allegations of authoritarian rule.