KUALA LUMPUR, 1 October 2005 — Malaysia’s Prime Minister Abdullah Ahmad Badawi pledged yesterday to spur the economy with the 2006 budget after this year’s growth forecast was cut to 5.0 percent, well down from 7.1 percent in 2004. “The 2006 budget focuses on a number of specific measures to generate greater quality growth in the near term that can contribute toward laying a strong foundation for long-term, sustainable growth,” he told Parliament. The Finance Ministry said yesterday the economy would only scrape in at the bottom of its earlier forecast of 5.0-6.0 percent growth in 2005, quickening slightly to 5.5 percent in 2006, but Abdullah was upbeat about future prospects. “Despite the less than favorable external environment, growth is estimated at 5.0 percent for 2005,” he said, in his second budget address since taking over from veteran leader Mahathir Mohamad.
“Global economic prospects are expected to be more challenging, following persistent sharp increases in oil prices and the less accommodative monetary stance of developed countries, particularly in the US,” he said.
“It is inevitable that global developments will have an impact on the Malaysian economy. However, the government is confident that, with the measures in this budget, growth will remain strong at 5.5 percent in 2006.
Among the measures was a 5.7 billion ringgit ($1.5 billion) rural infrastructure program, which he said would raise the quality of life in less-developed regions with new roads, water, electricity and educational facilities.
The major spending initiative was 14.4 billion ringgit allocated for the agriculture, industry and infrastructure sectors.
There were few surprises in the budget but among the sweeteners were a new bonus worth six weeks salary to civil servants earning below 1,000 ringgit a month, while those earning more than 1,000 ringgit received a one-month bonus. Malaysia, a net oil exporter, has increased fuel prices four times since October last year and the government announced in September there would be no further hikes this year.
But Abdullah urged citizens to conserve energy usage and said that in the future electricity tariffs will need to be adjusted “to promote greater energy efficiency and discourage wasteful and excessive consumption”.
The premier hailed his government’s success in lowering the budget deficit from 5.6 percent of gross domestic product (GDP) in 2002 to an estimated 3.8 percent this year, and said it would be clipped to 3.5 percent in 2006. However, analysts said that despite the optimism, Malaysia’s economy relied heavily on external demand and exports, and forecasts were at the mercy of global events.
“At the pace the economy is going right now, I think their target could possibly be achieved — provided everything remains as it is,” said AmInvestment Group economist Wan Suhaimi.