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Malaysia Said to Seek Lower Deficit, Growth Up to 5.5%

Malaysia plans to reduce its budget shortfall for a fourth straight year in 2013, when the economy may expand 4.5 percent to 5.5 percent from about 5 percent this year, according to a senior government official.

Prime Minister Najib Razak plans to gradually cut the Southeast Asian nation’s deficit to 3 percent of gross domestic product by 2015, the official told reporters today on condition of anonymity ahead of tomorrow’s budget address in parliament. That would be the smallest gap since 1998 during the Asian financial crisis, according to data compiled by Bloomberg.

“I hope there will be more conscious efforts to balance the budget and consolidate public finances,” Azrul Azwar Ahmad Tajudin, Kuala Lumpur-based chief economist at Bank Islam Malaysia Bhd., said in a phone interview. “Next year’s growth target is realistic given the multitude of uncertainties in the global economy and financial system.”

This will be the prime minister’s last budget before he calls elections due by early next year. Standard & Poor’s and Fitch Ratings have said Malaysia should tighten public finances after Najib, who is also finance minister, raised state salaries, handed cash to low-income households and awarded infrastructure projects to spur growth in the past year.

The ringgit, which has strengthened more than 3 percent this quarter, advanced 0.2 percent to 3.0766 at the close of Kuala Lumpur trading, according to data compiled by Bloomberg. The benchmark FTSE Bursa Malaysia KLCI Index rose 0.5 percent, after closing at a record on Sept. 4.

Deficit Estimate

Malaysia, Southeast Asia’s third-biggest economy, will probably post a deficit of 4.3 percent of GDP for 2013, according to the median estimate of eight economists in a Bloomberg News survey this week. The shortfall would exceed 4 percent for a sixth year after a 4.7 percent gap projected by the government for 2012.

Najib’s ruling coalition won re-election in 2008 by the smallest margin since independence in 1957 after facing a resurgent opposition led by Anwar Ibrahim.

Malaysia’s 2013 budget will be mildly expansionary, the official said. The impetus for growth this year will come from the domestic economy, and foreign investment is expected to remain strong going forward, the person said.

Najib has attracted spending pledges from companies including Royal Vopak NV after unveiling a so-called economic transformation program in 2010 that identified $444 billion of private-sector led projects ranging from mass rail to oil storage for the current decade.

Najib remains committed to shifting the tax structure to become more consumption based with the introduction of a goods and services tax, the person said. More work needs to be done to sell the idea to the general public first, the official said.

The government originally intended to introduce a GST level of 4 per cent by mid-2011, replacing an existing narrower services tax. Reduction of state subsidies on essential items like sugar and fuel will continue to be done in stages, the person said.

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