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Najib Plans Tallest Tower, Rail Works to Boost Malaysian Growth
Oct. 16 (Bloomberg) -- Malaysia will build a 100-floor tower and a mass rail project as Prime Minister Najib Razak boosts spending in a budget that he says is "pivotal" to spurring growth and helping the nation achieve developed status.
Najib, also finance minister, tabled a 2011 budget plan yesterday for government spending of 212 billion ringgit ($69 billion), 2.8 percent larger than this year's outlay. Gross domestic product may expand 5 percent to 6 percent next year after growing a faster-than-forecast 7 percent in 2010, according to the Ministry of Finance's 2010/2011 economic report.
The leader, 57, aims to rejuvenate an economy where growth fell to an average 4.7 percent a year in the past decade from 7.2 percent in the 1990s, when then-Prime Minister Mahathir Mohamad wooed overseas manufacturers, developed highways and built the world's tallest twin towers. The government is counting on private investment to support its plans as it tries to cut one of the region's biggest budget shortfall ratios.
"Fiscal consolidation is taking a backseat to growth and political considerations," said Kit Wei Zheng, a Singapore- based economist at Citigroup Inc. "Anything that is potentially unpopular has been effectively shelved. It raises valid questions if the government has the political will to push though the painful but necessary reforms."
The benchmark FTSE Bursa Malaysia KLCI Index fell 0.4 percent yesterday. It has risen 17 percent this year, while the ringgit is the second-best performer in Asia excluding Japan with an 11 percent gain. The currency ended the day little changed at 3.0855 a dollar.
Deficit Narrows
The budget deficit is forecast to narrow to 5.4 percent of GDP in 2011 from 5.6 percent this year, the report showed. The country aims to achieve 6 percent economic growth next year, Najib said in his budget speech at parliament in Kuala Lumpur.
"The growth targets are reasonable and realistic" while the deficit target is "moving in the right direction," said Pankaj Kumar, who oversees about $560 million as chief investment officer of Kurnia Insurans Malaysia Bhd. "At the end of the day, it is the implementation and execution which is key, especially the infrastructure projects."
Malaysia plans to build six highways around Kuala Lumpur and construct a 300-megawatt gas-fired power plant in the state of Sabah, Najib said. The country will start on a mass rail project in the capital in "early" 2011, which is expected to attract 40 billion ringgit in private-sector investment, he said.
Tallest Building
A 100-floor, 5 billion-ringgit tower called Warisan Merdeka will be completed in 2015. The building, to be developed by Malaysia's biggest state asset manager Permodalan Nasional Bhd. in Kuala Lumpur, will be the tallest in the country, Najib said. The 88-floor Petronas Twin Towers are currently the nation's tallest buildings.
The state-controlled Employees Provident Fund, Malaysia's biggest pension fund, will undertake the development of a 10 billion-ringgit housing and commercial project. The nation plans to start a 3 billion-ringgit regasification project in Melaka state in 2012, and develop an oil services and equipment center in the southern state of Johor, he said.
The planned public and private partnership projects will lure 12.5 billion ringgit in private funding, Najib said.
Malaysia has eased barriers to foreign investment since early last year, when the global recession hurt exports of Unisem (M) Bhd. semiconductors and IOI Corp. palm oil. That didn't prevent foreign direct investment from tumbling 81 percent to $1.4 billion in 2009 from $7.3 billion the previous year, according to the United Nation's World Investment Report.
Investment Falls
Private investment has declined from an average 25 percent of GDP in the 1990s to 10 percent over the last decade, according to yesterday's report. The government said last month it has identified private sector-led projects worth $444 billion that can spur investment and push the nation towards developed- nation status by 2020.
Najib has said he wants to triple gross national income to 1.7 trillion ringgit in 2020 from 600 billion ringgit in 2009 and create 3.3 million jobs. To reach that target, Najib estimates that the country needs 2.2 trillion ringgit of funds, with 92 percent coming from private investment.
"The previous growth model, which had successfully progressed the nation from a commodity-based to an industrial economy, is unable to uplift the nation to a fully developed economy," Najib said in the report. "The 2011 budget is, therefore, pivotal towards the expeditious implementation of initiatives under the new growth model."
Revenue Rising
Total government expenditure in 2010 may reach 206.2 billion ringgit, according to the ministry. State revenue may rise 2.3 percent in 2011 to 165.8 billion ringgit amid higher contributions from corporate and personal taxes and income from petroleum, the report showed.
The government will seek to diversify its sources of revenue, of which about 40 percent comes from petroleum revenue, the finance ministry said.
Still, the government said this week it will further postpone the implementation of a goods and services levy intended to broaden the tax base. Najib, who hasn't set a new target date for the sales tax, said yesterday Malaysia plans to raise the service tax to 6 percent from 5 percent, and widen the tax to cover pay-television services.
Najib has tried to cut operational expenses, including trimming subsidies for sugar, gasoline, diesel and liquefied petroleum gas in July to save more than 750 million ringgit in government expenditure.
Subsidy Cuts
Subsidies paid by the government to keep prices of fuel and other essential goods and services low will fall 4.9 percent to 23.7 billion ringgit in 2011, the ministry said. "Subsidies for selected items will be further rationalized to remain purposeful," it said in the report, without providing details.
Inflation is expected to be "moderate" and stay below 3 percent in 2011 after probably remaining in a "benign" range of between 2 percent and 2.5 percent this year, the ministry said. Malaysia's monetary policy is accommodative and such a stance will be maintained to support the economy, according to the report.
The government said it plans to adopt a minimum wage policy and will continue to attract foreign talent to work in the country. Still, Najib said Malaysia plans to increase the levy it charges for foreign workers.
To contact the reporter on this story: Shamim Adam in Kuala Lumpur at sadam2@bloomberg.net
To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net
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