Malaysia unveiled on Tuesday an unexpectedly large M$60bn stimulus package to prevent the heavily export-dependent economy from sinking into a deep recession over the next two years.
The extra state spending, which will amount to 9 per cent of gross domestic product, is one of the largest announced by an Asian nation in relation to the size of its economy.
But Najib Razak, the finance minister and incoming prime minister, predicted the economy will suffer stagnant growth of plus 1 to -1 per cent this year, down from an earlier forecast of 3.5 per cent growth.
The package will include guaranteed funds for businesses, equity investments to boost the stock market and tax breaks in addition to increased state spending on infrastructure projects.
Malaysia has one of the world’s largest exposures to global trade, but exports have fallen sharply with a record 28 per cent plunge in January. The economy has also been hit by a sharp decline in the price for its main commodities, including oil and gas and palm oil. The government predicted that foreign direct investment could halve this year to M$26bn.
The new round of spending would increase the budget deficit to 7.6 per cent of GDP this year, up from 4.8 in 2008, but the government mainly relies on local sources of financing rather than overseas loans in an effort to maintain a stable credit rating. “There is ample liquidity in the domestic financial system,” the government said.
The package appeared aimed at building support for the new administration of Mr Najib, who is expected to take office as prime minister at the end of March, succeeding Abdullah Badawi.
The budget comes as the government faces several by-elections in early April in which it hopes to reverse heavy losses suffered at the polls last year, which narrowed its parliamentary majority and saw the opposition capture several state governments for the first time.
Government measures will focus on curbing unemployment, which some analysts believe could reach 6 per cent this year, and increase spending for the poor by providing subsidies for fuel and food. The government will hire 63,000 people, while reducing the nationâ€™s dependence on foreign labour.
It will also accelerate the building of infrastructure projects, including new airports, to support the important tourism industry. It promised to ease rules on foreign investment, although it did not reveal guidelines on how that would be achieved.
Copyright The Financial Times Limited 2009.
Source : Financial Time