UPDATE 1-Malaysia unveils record budget to spur post-pandemic recovery

(Adds details, comments from budget speech)

KUALA LUMPUR, Oct 29 (Reuters) - Malaysia announced its largest ever budget on Friday to jump-start a pandemic-battered economy, promising more developmental spending, subsidies and cash aid to drive growth in 2022.

The Southeast Asian country has seen fresh COVID-19 lockdowns this year dampen recovery, but a ramped-up vaccination drive and gradual reopening have boosted hopes of a turnaround.

“The 2022 budget... is a continuation of aid packages and economic stimulus announced before this,” Finance Minister Tengku Zafrul Abdul Aziz said in his budget speech to parliament.

The government’s fiscal deficit is expected to moderate to 6% in 2022, after climbing to 6.5% this year, but it warned in reports accompanying the budget that fiscal consolidation is expected to be more gradual than expected amid higher COVID-19 spending.

The expansionary budget also sets the stage for a general election that could be called by in the middle of next year. Malaysia’s next polls are due by 2023.

The government plans to spend 332.1 billion ringgit ($80.06 billion) in 2022, up from 320.6 billion ringgit this year, despite the expected hit to fiscal deficit consolidation.

Next year’s spending increase includes a hefty 21.9% jump in development expenditure, to 75.6 billion ringgit, while operating expenses will rise 6.3% to 233.5 billion ringgit, according to the government fiscal and outlook reports.

Malaysia expects economic growth to accelerate to between 5.5%-6.5% next year from this year’s estimated 3-4%, driven by normalisation of economic activities, resumption of projects and strong external demand.

Tengku Zafrul announced an allocation of 31 billion ringgit for subsidies, assistance and incentives, and 8.2 billion ringgit for cash aid.

Revenue is seen expanding 5.9% to 234 billion ringgit in 2022, including 25 billion ringgit in dividends from state energy firm Petronas, unchanged from the 2021 dividends.

Malaysia has rolled out 530 billion ringgit worth of stimulus packages to soften the pandemic’s blow, as coronavirus curbs weighed on revenue - targeted to come in at 221 billion ringgit this year, 6.7% short of initial estimates.

$1 = 4.1480 ringgit Reporting by Rozanna Latiff, Liz Lee, Mei Mei Chu and A. Ananthalakshmi; Editing by Simon Cameron-Moore