(Updates with stocks in fifth paragraph.)
Oct. 5 (Bloomberg) -- Malaysian Prime Minister Najib Razak may give handouts to the poor and increase civil servant salaries as he seeks to bolster support before elections that some economists predict may take place as soon as this year.
The prime minister, due to unveil the country’s 2012 spending plan on Oct. 7, may forecast a budget deficit of 5.1 percent of gross domestic product next year, from the government’s current estimate of 5.4 percent in 2011, according to the median prediction of six analysts in a Bloomberg survey.
Najib, who must seek a fresh mandate by early 2013, probably wants to go to the polls before a weakening global economy hurts Malaysian growth further, according to Barclays Capital. The leader has pledged to transform the Southeast Asian nation’s economy by improving efficiency and spurring investment as he tries to shore up support after the ruling coalition in 2008 had its narrowest election victory in half a century.
“We are expecting a people’s budget as the government may push for elections as early as November” amid slower global expansion, said Yong Yin Ng, a Kuala Lumpur-based analyst at Citigroup Inc. “We expect personal ‘goodies’ like higher personal relief, higher personal deductions, slightly lower personal income tax, affordable housing, civil servant bonus, and moderate increases in sin taxes.”
Barclays predicts polls will be held this year, and said that would be a “catalyst” for a strengthening in the Malaysian ringgit to 2.9 per dollar in six months. The currency rose 0.4 percent to 3.1895 as of 11:17 a.m. in Kuala Lumpur today. The benchmark FTSE Bursa Malaysia KLCI Index of stocks added 0.3 percent, set for its first day of gains in four.
“An improving investment climate, a solid fiscal position and strong domestic demand are likely to support the Malaysian ringgit,” said Rahul Bajoria, an economist at Barclays in Singapore. “Deteriorating external conditions are another reason for Najib to call an election soon, rather than risk the economic climate turning much worse.”
Europe’s sovereign debt crisis and the threat of a U.S. recession have roiled global stock markets, erasing almost $10 trillion from equities last quarter. Exports have fallen or slowed from the Philippines to Malaysia in recent months, damping growth in a region that led the recovery from the 2009 global recession.
Malaysia’s economy grew at the slowest pace since 2009 in the second quarter, climbing 4 percent from a year earlier. The government will give updated forecasts for 2011 and 2012 when the budget is unveiled. GDP will probably expand 4.8 percent this year and 5 percent in 2012, according to the median estimates of six economists surveyed by Bloomberg.
Malaysia’s inflation has probably peaked and price pressures may ease as the global economy deteriorates, central bank Governor Zeti Akhtar Aziz said Sept. 25. Bank Negara Malaysia kept borrowing costs unchanged at 3 percent for a second straight meeting in September after four increases from early March 2010 to May this year.
Najib, 58, said last month he will abolish laws allowing the government to detain citizens without trial and ease media rules as he moves to repair his public image. The announcement came two months after street protests that led to the arrest of more than 1,600 people and a 13 percentage-point drop in his public approval from last year.
The prime minister may reiterate this week the government’s plan to introduce minimum wages and announce a salary increase for civil servants, particularly those earning less than 3,000 ringgit ($937) a month, according to Suhaimi Ilias, an economist at Maybank Investment Bank. Maybank also predicts higher allocations for social welfare programs and some personal income-tax reliefs.
Department-store operator Parkson Holdings Bhd. and automaker UMW Holdings Bhd. are among consumer stocks that investors seeking to profit from the budget may want to look at, Citigroup said, even as it advised them not to “aggressively trade” the event.
“Consumption plays come to mind as the government dishes out goodies to individuals and households,” Citigroup’s Ng said. “There could be some spark of life for cyclical sectors like construction and oil and gas as the government reiterates its commitments to major projects and investments.”
The government last year unveiled a so-called economic transformation program under which it identified $444 billion of projects from mass rail to nuclear power that it would promote in the current decade. It has also trimmed subsidies this year for sugar and fuel to lower government expenditure.
“While fiscal discipline should remain the guiding principle in order to maintain macroeconomic stability, we believe that the government will draw up a sensible and realistic budget since excessive tightening of the purse strings in the short term would only add to the headwinds for the economy,” said Lee Heng Guie, chief economist at CIMB Investment Bank in Kuala Lumpur. “The government needs to strike a fine balance between its twin goals of reducing the budget deficit and ensuring economic expansion.”
--With assistance from Manirajan Ramasamy in Kuala Lumpur. Editors: Stephanie Phang, Ovais Subhani
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