Thursday, June 26, 2008

Malaysia raises development spending

Associated Press
By EILEEN NG 06.26.08, 7:05 AM ET

KUALA LUMPUR, Malaysia -
Malaysia announced plans Thursday to spend $9.4 billion more on development projects including rural growth, public transport and food production in a bid to reach an average 6 percent annual economic expansion until 2010.
Prime Minister Abdullah Ahmad Badawi told Parliament that overall government spending under a five-year development plan through 2010 will increase 15 percent to 230 billion ringgit ($72 billion) to meet rising project costs, boost growth and improve food security.
The move follows a midterm assessment of the Ninth Malaysia Plan, which is part of a series of five-year plans to make Malaysia a developed nation by 2020.
Abdullah warned rising food and fuel costs, as well as the global financial turbulence could derail Malaysia's growth if no action was taken. The government earlier this month cut fuel subsidies, which sparked angry protests and intensified calls for Abdullah to step down.
"Rising oil prices and uncertainty caused by external factors makes it difficult for any nation to fully shield its citizens from hardship. The government remains committed to do everything within its power to lighten the burden of the people and preserve their quality of life," Abdullah said.
"Priority will be given to people-centric projects which provide basic amenities and impart direct benefit to the people."
Following the shift in priority, the government has deferred a slew of projects including a proposed 2 billion ringgit ($625 million) monorail and 1.5 billion ringgit ($469 million) expressway in the northern Penang state, said Sulaiman Mahbub, director-general of the Economic Planning Unit (nyse: UNT - news - people ).
Out of the additional 30 billion ringgit, a third will be channeled to spur growth in five newly launched development corridors in rural areas while 10 percent will go to an incentive fund to woo investors, he told reporters earlier.
Another 10 percent will boost food production, while the rest will be used to build more rural roads, enhance urban transportation and rural education and boost the national broadband infrastructure, he said.
For the remaining period of the plan, gross domestic product is projected to grow an average 6 percent annually and inflation to rise to between 3 and 4 percent. Growth averaged 6.1 percent in the first two years of the plan.
Private investment is expected to expand 10.6 percent to reach an estimated 305.8 billion ringgit ($96 billion) between 2008 and 2010, Abdullah said. Hardcore poverty is expected to be eradicated and the government's fiscal deficit sustained at 3.2 percent of GDP by 2010, he added.
Economists said the growth forecast was too bullish. Inflation hit a 22-month high of 3.8 percent in May and is expected to climb further.
"The GDP forecast appears to be on the high side. Headwinds from external uncertainties and domestic risks due to the price hikes and inflationary pressure will weigh down the growth momentum," said Lee Heng Guie, economist with CIMB Securities.
He projected growth to ease from 5.3 percent this year to 5 percent in 2009 before rebounding to 5.8 percent in 2010.
Abdullah again defended the move to raise gasoline pump price by 41 percent, saying it will give the government greater flexibility to navigate the risks of a global recession.
By raising the price, Abdullah has taken a big political risk after leading his ruling coalition to its worst results ever in the March 8 general elections.
Abdullah promised to give greater emphasis to boost Malay corporate ownership from 19.4 percent now, to between 20 and 25 percent in 2010. The aim is to raise it to 30 percent by 2020 as part of an affirmative action program for the majority Malays, which is sore point with the minority Chinese and Indians.
Critics say the current figure is statistically understated because it doesn't include Malay-led government-linked corporations and is calculated based on the company's par value, not market value