KUALA LUMPUR, MALAYSIA - MALAYSIA'S government will spend 7 billion ringgit (S$2.6 billion) next year on projects that will help boost economic growth, Finance Minister Najib Razak announced on Tuesday.

The government cut its 2009 growth forecast from 5.4 per cent to 3.5 per cent, saying that Malaysia would not escape the effects of the global financial crisis.

He also said the budget deficit would be 4.8 per cent of gross domestic product, up from a previous projection of 3.6 per cent.

Mr Najib said that although the economy would expand by 5.7 per cent this year, growth would slow substantially in 2009.

'Taking into account all global factors and the steps taken in the 2009 budget, I want to announce that our GDP has been revised for 2009 to 3.5 per cent,' he told parliament.

'I am proposing steps as a policy response to the global financial crisis so that Malaysia's economy can be guaranteed growth and that the Malaysian people are not unduly pressured.'

Opposition politicians, led by Mr Anwar Ibrahim, walked out of parliament complaining Mr Najib had not allowed them to debate the 2009 budget properly, although political and economic analystssaid Mr Najib had shown he was 'market friendly'.

He also outlined plans to shift almost US$2 billion to be saved from fuel subsidies into infrastructure projects and to cut pension fund contributions to 8 percent from 11 per cent to put more cash in voters' pockets.

Mr Najib also said that seven billion ringgit would be spent on 'high-impact' projects.

'This is important to increase economic activity in the country and to stimulate the private sector as well as to take care of the welfare of the people,' he said.

'The drastic change in the global economic development lately requires us to take a proactive action to deal with the global crisis,' Mr Najib said at the close of the 2009 budget debate.

'Extraordinary times require extraordinary measures,' Mr Najib said.

Malaysia's economy has largely been insulated from the crisis that has swept the global economy because of capital controls, reforms in the wake of the 1998 Asian financial crisis and huge foreign exchange reserves, but it is geared to exports.

'The growth forecast (revision) has not come as a surprise, obviously Malaysia is quite heavily exposed to the global economy with an exports-to-GDP ratio in excess of 100 per cent,' said Ms Aninda Mitra, sovereign analyst at Moody's Investors Service.

Other Asian countries, such as South Korea, have not been as lucky and Seoul on Monday announced an US$11 billion package to boost the economy.

Mr Najib also adopted measures attractive to foreign investors by allowing them to hold up to 70 per cent of firms in the service sector from 2015, a move that has often been resisted by developing countries.

Political pressures

Mr Najib will take power at a time when economic growth in this Asian country of 27 million is fading fast and a newly resurgent opposition led by Anwar is snapping at his heels.

He needs to act quickly to rebuild confidence in the Barisan Nasional coalition that has ruled Malaysia for 51 years but which recorded its worst ever election result in March, losing its two-thirds majority that allowed it to change the constitution.

Mr Anwar, who said in Sept he was on the verge of toppling the government with the aid of defectors from the ruling coalition, was denied the opportunity to speak in the debate.

'We didn't come here to listen to a lecture on economy. There is no meaning to just listen and be not allowed to debate after waiting for one hour,' he said after leading a walkout.

Mr Anwar was kicked out of government during the 1998 financial crisis for saying Malaysia should adopt free-market policies advocated by the International Monetary Fund, a move which was opposed by then-prime minister Mahathir Mohamad.

Since he was released from prison after what he says were trumped-up sodomy and corruption charges, Mr Anwar has challenged the government and his pressure forced it to dump incumbent prime minister Abdullah Ahmad Badawi in favour of Mr Najib.

'I think Mr Najib sends the right signals to the market. The market expects the new prime minister to be prudent and take a hands-on approach to the economy,' said Mr James Chin, a political scientist at the Monash University campus in Malaysia.

'The key difference between Najib and Abdullah is that Najib is pre-empting the market by announcing these measures rather than waiting for the technical recession to happen,' Mr Chin said. -- AFP, REUTERS