The government said today it planned to boost infrastructure and consumer spending to cushion the impact of the global economic downturn and bolster confidence in the run-up to an expected general election in early 2012.

Prime Minister Najib Abdul Razak also handed out cash payments to the poor, raised civil servants' pay and opened up 17 service subsectors to foreign investors, with domestic demand targeted to be the key driver of the economy as a possible global recession clouds the outlook.

damacai school donation lauching 260911 najib "Global developments would certainly have a direct impact on the Malaysian economy," Najib, who is also finance minister,

said as he presented the 2012 budget in parliament.

"With these developments the government will put in place measures to stimulate domestic economic activities, in

particular public and private investments."

The government also allocated RM2 billion of infrastructure projects for bumiputeras, most of whom are ethnic Malays. It offered tax breaks for Islamic bond issuance, raised civil servant pensions and announced that it would list the global arm of its plantation group Felda.

Najib forecast that the economy would grow 5-6 percent in 2012, while the fiscal deficit would fall further on the strength of robust domestic demand and commodities exports.

Reflecting the downdraft on Asia from the slowdown in the United States and Europe, the government trimmed its 2011

economic growth target to 5.0-5.5 percent from 5.0-6.0 percent earlier.

Its fiscal deficit will shrink further to 4.7 percent of gross domestic product next year from 5.4 percent in 2011 as it

reduces development spending, confirming an earlier Reuters report.

Analysts said the 2012 spending plan was tailored to woo voters, particularly the majority ethnic Malays whose support is

split between Najib and the opposition.

"This a populist budget, he is trying to be popular with everyone, give goodies here and there so everyone won't do too

badly," said James Chin, a political analyst at Monash University in Malaysia.

"What is surprising is the allocation to bumiputeras. This was what Malay rights groups have been clamouring for but it's a

smaller allocation as they asked for 30 percent of the project. He is definitely trying to shore up ethnic Malay support."

Najib is widely expected to call for a general election in early 2012, although one isn't due until 2013, to prevent

further political fallout from the weakening global economy.

The stock market ended 0.5 percent higher at 1,400.05 points while the budget was being announced.

Growth, deficit targets too optimistic?

Authorities also will maintain subsidies to keep prices down, while banking on low borrowing costs and a healthy job market to keep economic growth on an even keel next year.

But most economists thought the growth and deficit targets were too optimistic, given the weak global outlook.

"The last statement from Bank Negara was a bit more cautious, highlighting more the downside risks, whereas what I've seen so far in terms of the forecasts and the general statement, is the government still seems fairly upbeat," said Hak Bin Chua, an economist with Bank of America Merrill Lynch.

"So there seems to be a slight disconnect... are these sort of targets or are these really realistic projections?"

Malaysia's economic growth accelerated to a decade-high 7.2 percent in 2010, and is officially expected to be at least 5

percent this year, though annual growth moderated to 4.0 percent in the second quarter of 2011.

Last month, the Asian Development Bank said it had reduced its forecast for Malaysia's 2011 GDP growth to 4.8 percent from

5.3 percent previously as global uncertainties grow, and trimmed its 2012 forecast to 5.1 percent from 5.3 percent.

The government said net domestic borrowings are expected to total RM43.6 billion versus RM45.1 billion in 2011.

Government revenue will be up 1.9 percent at RM186.9 billion ($59 billion) in 2012 from a year ago, thanks to better

tax earnings.

Subsidy spending on staples such as fuel, sugar and flour are expected to total RM33.2 billion next year, versus

RM32.8 billion in 2011.

The government said inflation stood at 3.1 percent for the January-August period this year but did not give a forecast for

2012.

Domestic demand will expand 7.6 percent in 2012, versus 8.1 percent this year.

Exports, which accounted for about 89 percent of the Malaysian economy last year, are targeted to rise 6.0 percent next year, slowing slightly from the projected 6.7 percent this year. Import growth will moderate to 7.0 percent next year from

7.5 percent this year.

- Reuters

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