KUALA LUMPUR, Sept 6, 2007 (AFP) - Malaysia's 2008 budget to be unveiled Friday is expected to be aimed at bolstering growth and winning the hearts of voters ahead of snap polls tipped for early next year.

Analysts said that as well as providing sweeteners for an electorate disgruntled over rising prices and fuel costs, Prime Minister Abdullah Ahmad Badawi will try to boost competitiveness against regional powers like China.

"The crux of the 2008 budget proposal is to step up implementation of existing projects, diversify sources of growth and enhance competitiveness," said Wan Suhaimi Saidie, an economist with Kenanga Investment Bank.

Malaysia is aiming for 6.0 percent growth this year, after its economy expanded by 5.9 percent in 2006.

But analysts said the government must introduce measures to bolster domestic demand given flagging exports and the increased risk of a US slowdown due to the subprime lending crisis.

Chua Hak Bin, an economist with the Singapore-based Citigroup Global Capital Markets, said the budget was likely to be studded with goodies tied to the polls which are expected to be called well ahead of an early 2009 deadline.

"We expect a people-focused pre-election budget, given the likelihood of early elections," he told AFP.

Economic observers said the government is likely to cut personal income tax by up to two percentage points over the next two years, reducing it to 26 percent -- in line with previously announced reductions in the corporate tax rate.

"There is a need to bolster domestic demand amid soft exports and investments which have been slow to recover," said Chua, noting that neighbouring Singapore is expanding at a faster rate and has a lower tax regime.

Malaysia, Southeast Asia's third-largest economy, has seen foreign direct investment steadily declining in recent years. In 2006 it amounted to an estimated 3.9 billion dollars, compared to 5.5 billion dollars in 2001.

However, Wan Suhaimi said the government's generosity may be reined in by concerns over the widening budget deficit.

The deficit is expected to rise to 3.9 percent of GDP or 26.5 billion in 2008, from an estimated 3.7 percent of GDP or 23.1 billion in 2007.

Malaysia has already embarked on multi-million-dollar development plans to spread growth and jobs to its Malay-majority hinterlands, which is a traditional source of votes for Abdullah's ruling party.