Malaysia unveils high-spending Budget

Dr Mahathir outlined a $7bn package for boosting the Malaysian economy

Malaysia has cut taxes, raised pay for civil servants and unveiled an economic stimulus package, as part of its Budget for 2002.

This increase is possible given the higher government revenue as a result of economic growth and the government's prudent financial management

Dr Mahathir

Prime Minister Mahathir bin Mohamad, who is also acting finance minister, said the100.5bn ringgit ($26.4bn) Budget aimed to strengthen growth and ensure an equitable distribution of wealth.

Dr Mahathir also issued a positive outlook for the next year, forecasting 5% growth in 2002, after only 1-2% expansion this year.

Malaysia is the latest Asian country announce an economic stimulus package which, at $7bn, is the region's biggest after schemes unveiled by China and Japan.

Tax cuts

The Budget cut maximum personal income tax by one percentage point to 28%, and gave the country's 850,000 civil servants a salary bonus on top of a 10% increase next year.

Trading limits have been introduced

"This increase is possible given the higher government revenue as a result of economic growth and the government's prudent financial management," Dr Mahathir said in his Budget speech.

He also announced a range of tax cuts aimed at stimulating business, with reinvestment by agriculture companies granted 100% tax exemption against income for five years.

Duties on petrol and cigarettes were raised.

Economic fundamentals

Dr Mahathir said the current account surplus, subdued inflation, low foreign debt and a pegged currency were all factors in assuring a recovery.

Malaysia's trade surplus is expected to rise to 55.4bn ringgit (£10.1bn; $14.6bn) in 2002, from an estimated 51.74bn ringgit this year, with 6% export growth.

Dr Mahathir gives the Malaysian produced Proton the thumbs-up

The manufacturing sector is forecast to grow by 6.5%, thanks to a recovery in global electronics demand and increased consumer spending on cars and household goods.

The sector is predicted to expand by only 0.2% this year.

The services sector is seen growing at 5.3% in 2002, up from 4.4% this year, but agriculture is expected slow to 0.8% from 1.2%.

Inflation is forecast hold below 2% and employment rise 4.25% to 9.8 million, from a population of about 22 million, representing almost full employment.

But the budget will run a deficit of 18.6bn ringgit, or 5% of gross domestic product.

Stock market limits

The Malaysian government said on Friday it will implement stock market circuit breakers that would halt trading during bouts of volatility.

"The mechanism will give investors breathing space before resuming stock market trading activities," said Dr Mahathir.

"These halts are based on pre-determined trigger levels," he said without providing further details.