Malaysia's Najib delivers budget amid opposition protests

October 21, 2016 4:58 AM EDT

Malaysian Prime Minister Najib Razak signs a welcoming book at Government House in Bangkok on September 9, 2016. REUTERS/Lillian Suwanrumpha/Pool


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By Joseph Sipalan and Emily Chow

KUALA LUMPUR (Reuters) - Malaysia's Prime Minister Najib Razak courted voters with perks and subsidies on Friday but was greeted by angry protests from opposition leaders unhappy with his handling of a corruption scandal at state fund 1Malaysia Development Berhad (1MDB).

Najib, eyeing possible early elections next year, also pledged in his budget to cut a large fiscal deficit to keep the economy on track for strong growth.

Southeast Asia's second-largest oil producer was left reeling from the slump in global crude prices late last year, forcing it to slash its 2016 budget in January and lower its growth target to between 4 and 4.5 percent.

Najib said the outlook was improving and expects growth to pick up marginally in 2017 to between 4 and 5 percent.

Spending will rise 3.4 percent to 260.8 billion ringgit ($62.3 billion) next year, but the budget deficit would be cut to 3 percent of GDP from a target of 3.1 percent this year, he said. Ratings agencies have warned of a possible downgrade if the budget deficit is too large.

"We are now on the right track, as we have and are taking firm, bold and right decisions despite the measures being unpopular," the prime minister said in his speech in parliament.

Malaysia's stock market and ringgit currency were unmoved.

Najib was widely expected to present a populist budget to shore up support ahead of elections he could call in 2017.

He announced an allocation of 6.8 billion ringgit to the government's annual cash handouts program, with 10 billion ringgit to be set aside for subsidies next year.

The government's housing program for first time homebuyers would be expanded, while a special fund of up to 3 billion ringgit would be allocated for investment in small- and mid-cap companies.

Najib also announced tax relief on consumer items and relief for working mothers and parents of pre-schoolers.

"In our view, it remains a fine balancing act to maintain fiscal prudence and growth, with oil as the wild card," said Weiwen Ng, an analyst at ANZ Research.

OPPOSITION WALKOUT

Najib has been under fire over allegations of corruption at 1MDB, the indebted state fund whose advisory board he chairs.

Lawsuits filed by the U.S. Justice Department in July seek to seize more than $1 billion of assets allegedly siphoned off from 1MDB, a fund Najib established in 2009.

The lawsuits do not name Najib but say more than $700 million of misappropriated funds flowed into the accounts of "Malaysian Official 1", who U.S. and Malaysian officials have identified as Najib.

The prime minister was booed by opposition lawmakers throughout his speech. The speaker then asked lawmakers not interested in listening to the budget to leave. About 80 percent of the opposition bench walked out, describing the budget as unrealistic, said opposition lawmaker Tian Chua.

"The government should be honest and responsible to the people," said Muhyiddin Yassin, the former deputy premier who now leads a new party chaired by Malaysian strongman Mahathir Mohamad.

Once a high-flying "tiger" economy, Malaysia struggled in recent years as low oil prices, the slowdown in China, and weak demand in developed nations have all weighed on its economy, pressuring finances.

Ratings agency Moody's said the budget's focus on near-term fiscal consolidation supports Malaysia's A3 rating, but said it expects government debt to continue to climb.

A government economic forecast released ahead of the budget said petroleum revenue would decline to under 15 percent in 2016 from nearly 36 percent in 2011, and the country's current account surplus would shrink further.

($1 = 4.1840 ringgit)

(Additional reporting by Rozanna Latiff and A.Ananthalakshmi and Liz Lee; writing by Praveen Menon; Editing by Jacqueline Wong)



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