| KUALA LUMPUR
KUALA LUMPUR Aug 16 A surge in investment that
propelled surprisingly strong growth in Malaysia's economy in
the second quarter showed the government had opened spending
taps with an election looming that could be the closest in the
Malaysia's gross domestic product grew at an annual pace of
5.4 percent in the second quarter, buoyed by robust domestic
demand and a steep 26.1 percent rise in investments made by the
public and private sectors.
Idris Jala, who heads the agency implementing the $444
billion Economic Transformation Program (ETP) to lift Malaysia
to high-income status by 2020, told Reuters the numbers clearly
reflect private sector confidence.
"Market conditions are conducive for businesses to continue
to invest in Malaysia," he said, citing a 42 percent
year-on-year rise in loans disbursed for use as working capital.
But much of the rise in private sector investment was
related to the launch of big government-linked infrastructure
and oil and gas projects, some of them connected to ETP.
Malaysia's central bank cited some key projects for the rise
in investments, including the Legoland theme park project in
southern Johor state costing 700 million ringgit ($225 million)
whose main shareholder is a unit of state investment arm
Khazanah Nasional Bhd. A 3 billion ringgit
regasification plant contract included in the second quarter was
awarded by largely state-owned Petronas Gas Bhd.
The strong spending seems likely to continue into 2013 as
Prime Minister Najib Razak looks to shore up support after his
Barisan Nasional coalition slumped to its worst election
performance in 2008, losing its two-thirds parliamentary
"They want to get the projects out in case the outcome of
the election doesn't favour them," said one local economist who
declined to be identified.
Najib, who has until April 2013 to call elections, has
announced a series of giveaways which have swelled government
spending. Fiscal sweeteners this year have included pay rises
for civil servants and cash payments for students. Cash handouts
to low-income households earlier this year accounted for 2.6
billion ringgit ($821 million) alone. Najib's budget speech
scheduled for Sept. 28 is expected to bring more giveaways,
including another cash handout to those on low incomes.
RISING DEBT BURDEN
Kenanga, a local research house, likened the investment
spending to a "large stimulus effect", adding that big
infrastructure projects would be in full swing from the second
half onwards as a large chunk of funding is disbursed ahead of
Credit ratings agency Fitch said last week that Malaysia was
facing rising fiscal pressures but was unlikely to address them
until after the elections. A strong element of government-linked
stimulus has driven growth for the last four quarters, said
Fitch analyst Philip McNicholas.
"If the external environment deteriorates, it could dampen
overall growth and cause further deterioration in public debt
ratios," he said.
Malaysia national debt rose to 53.4 percent of GDP at the
end of the first quarter, just under the 55 percent ceiling, and
has climbed steadily from about 40 percent in 2008.
Another gauge of output, gross national income, which strips
out profits repatriated by foreign companies, rose by a more
muted 2.8 percent in the second quarter.
Data from Malaysia's statistics department shows that gross
domestic product figures are on a different path from gross
national income, with GDP growth outstripping GNI in each
quarter since the third quarter of last year.
(Reporting by Siva Sithraputhran; Editing by Stuart Grudgings
and Simon Cameron-Moore)