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Malaysia to announce new measures to boost economy

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November 4, 2008

Malaysia to announce new measures to boost economy
Malaysia's prime minister in waiting is set to announce plans to aid the economy on Tuesday, although few economists expect any big pump-priming measures as the country prepares for an export-led growth slowdown, reported Reuters.

Najib Razak, deputy prime minister and finance minister, has already said economic growth will likely be cut from the 5.4 percent planned for next year and that the budget deficit will rise from the 3.6 percent of gross domestic product expected in 2009.

The plans to be announced by the man who will become prime minister in March may include a cut in employees' contributions to the country's pension fund, the Employees' Provident Fund (EPF), by up to 2 percentage points from 11 percent, and an easing of rules to encourage foreign investment in the property and services sectors, economists said.

Signs of a slowdown in Malaysia's export-led economy are expected to emerge when September data is published later this week with export growth seen slowing to 8.2 percent year-on-year, from 10.6 percent in August.

The slowdown reflects lower demand for electronics, 40 percent of exports, as well as lower crude and palm oil prices as the global economy is hit by the financial crisis.

Economists said they expected the government to prioritise some of the large construction projects and delay others as well as look into cutting high raw material costs to get stalled projects off the ground.

"I don't think the government will increase spending. They may give some tax incentives or reduce the rate of contribution to EPF to encourage consumer spending. The cut in fuel prices last Saturday was the first step," said Peck Boon Soon, economist at RHB Research.

Malaysia cut fuel prices for the fourth time last week since raising prices by 41 percent in June in an effort to tame its soaring budget deficit. Even after the fuel subsidy cuts, the deficit will come in at 4.8 percent of GDP this year, the highest since 2003.

After months of instability following the March elections, in which the opposition scored its best ever result and deprived the government that has ruled Malaysia for 51 years of its two-thirds majority in parliament, risks are subsiding.

With Najib having secured an insurmountable lead in the race to head the main government party, the United Malays National Organisation, he now has breathing space.

The challenge of opposition leader Anwar Ibrahim, himself a former finance minister and deputy prime minister, failed to meet a self-imposed deadline of toppling the government on Sept. 16.

"Politically, the situation is stabilising. There is no point to stir up the hornet's nest," said Wan Suhaimi, economist at Kenanga Investment Bank.

"We expect Najib to announce the re-scheduling of some (investment) projects or maybe get some projects that are in a state of paralysis off the ground."

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