Published February 25, 2009

KL looking to speed up new spending

Govt raises ceiling for the tender process for state contracts

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(KUALA LUMPUR) Malaysia's government is looking at possible funding sources for a planned second round of spending to boost growth in the export-led economy but has not yet agreed on a figure.

Mr Najib: Spending has to be big enough to make an impact on the local market

Deputy Prime Minister Najib Razak said yesterday that new funds in the mini-Budget due on March 10 would be disbursed more quickly as the ceiling for the tender process for government contracts had been raised.

'It (the spending) has to be big enough to make an impact on the domestic market, so we are assessing the figure and the percentage of GDP (gross domestic product) and the resources for fund-raising,' Mr Najib told reporters in Parliament after a meeting on the spending plans.

The extra spending comes as Mr Najib, who is also finance minister, gets ready to take the premiership at the end of March and as Malaysia braces for what could be its first recession in eight years.

Most economists had forecast the package, due to be announced on March 10, would be in the region of RM10 billion to RM15 billion (S$4.2-6.2 billion), although a junior government minister said recently that it could be as much as RM30 billion.

An existing RM7 billion spending plan was widely criticised for being too small at just 1.1 per cent of GDP and too slow to disburse.

Mr Najib said yesterday that the spending processes would be speeded up.

'The ceiling for the tender process for government contracts will increase from RM200,000 to RM500,000,' he said.

That means contracts will be processed on a quicker quotation basis rather than put out to an extensive tendering process.

The sliding economy coincides with a period of political instability in Malaysia as the government that has ruled the nation of 27 million people, grapples with a surging opposition in an increasingly bitter battle of words.

Meanwhile, Malaysia's economy will shrink this year for the first time since 1998 as exports dry up and unemployment rises, said Citigroup Inc, the latest bank to cut forecasts for the country.

GDP may contract 1.5 per cent in 2009, Citigroup economist Kit Wei Zheng said in a report yesterday, reversing a prediction for expansion of 0.5 per cent.

The jobless rate may rise to more than 5 per cent, he said.

Citigroup joins Nomura Holdings Inc and CLSA Asia-Pacific Markets in slashing forecasts for Malaysia's economy, as the government prepares to announce a second stimulus plan next month.

Domestic banks expect loan defaults to rise, while exports, which have fallen for three straight months, may drop for the whole of 2009, the government said yesterday.

The second stimulus could push the government's Budget deficit to 10 per cent of GDP, Citigroup said.

An overspend of that scale would probably trigger a credit-rating downgrade and a sell-off by foreign investors, the bank said.

Efforts by the government to stimulate consumer spending risk being derailed by increasing unemployment, Citigroup said in its report.

Malaysia's jobless rate stood at 3.1 per cent in September.

Overseas sales of Malaysian products like electrical components, palm oil and crude oil may fall 4 per cent in 2009, or increase 0.5 per cent at best, Minister for International Trade and Industry Muhyiddin Yassin said on Monday.

Citigroup also reduced its 2010 economic growth forecast for Malaysia to 3.5 per cent from 4.2 per cent. -- Reuters, Bloomberg