09/03/2009 (Bloomberg) - Malaysia may unveil tax cuts, public spending and other measures totaling more than 30 billion ringgit ($8 billion) tomorrow, more than four times an earlier plan, as it seeks to avoid a recession this year.

Malaysia needs a second stimulus of at least 33 billion ringgit, according to AmResearch Sdn. economist Manokaran Mottain. Deputy Finance Minister Kong Cho Ha told the Chinese- language Sin Chew Daily last month the government will announce an additional package of 30 billion ringgit to sustain economic growth and stem rising unemployment.

Asian nations have unveiled stimulus plans worth almost $700 billion and cut borrowing costs as the global slump pushed Japan, Hong Kong, Singapore and Taiwan into recession. Malaysia’s economy grew at the slowest pace in seven years last quarter as falling exports hurt companies including Malaysian Pacific Industries Bhd. and job losses surged.

“The spectre of a technical recession for Malaysia in the first half of 2009 is now a certainty while an outright recession for the full-year is inevitable,” said Azrul Azwar Ahmad Tajudin, an economist at Bank Islam Malaysia Bhd. in Kuala Lumpur. “We seriously need a bold and decisive policy action with more aggressive fiscal and monetary measures.”

Malaysia will allocate 5 billion ringgit on development and another 5 billion ringgit on “operational” spending as part of its second stimulus package, Deputy Finance Minister Kong said March 5. The total package may be worth as much as 35 billion ringgit, Agence France-Presse reported yesterday, citing a government official it didn’t identify.

‘More Comprehensive’
Finance Minister Najib Razak, who has said the second stimulus plan, or so-called mini budget, will be “bigger and more comprehensive” than a 7 billion-ringgit package in November, is due to table the new plan in parliament tomorrow.

Malaysia’s five- and 10-year government bonds have slumped in the past six weeks on concern the government will increase debt sales to fund a widening budget deficit. Yields on the note maturing in April 2014 rose to the highest level since Nov. 24 on March 6.

The finance ministry will sell 4.5 billion ringgit of the benchmark five-year notes on March 12, the single biggest offering since June 2004. Markets in Malaysia are closed today for a public holiday.

The government’s additional spending may increase this year’s budget deficit to as much as 7.6 percent of gross domestic product, more than the 4.8 percent estimated in November, according to Citigroup Inc. That would be the biggest gap since 1987, according to Bloomberg calculations using government data for the budget balance and GDP at current prices.

Secondary Concern
“The priority for the government now is to cushion the economy from the severe global recession and to spur economic growth,” Peck Boon Soon, an economist at RHB Research Institute Sdn., said in a March 6 report in Kuala Lumpur. “We view the worsening budget deficit and a potential downgrade in credit rating as a secondary concern” as long as it is temporary.

Analysts at Citigroup Inc. and Standard Chartered Plc expect Malaysia to join neighboring Singapore in recession this year, with Nomura Holdings Inc. predicting a full-year contraction of as much as 4 percent. Second Finance Minister Nor Mohamed Yakcop said Feb. 27 it’s not clear whether the country will escape a recession in 2009 because “there’s so much uncertainty out there.”

The government, which expects 2009 growth to slow to an eight-year low of 3.5 percent, will revise the forecast this month, Najib said Feb. 17.

Rate Cuts
The $181 billion economy expanded 0.1 percent in the fourth quarter from a year earlier, and exports fell the most in 15 years in January as demand for electronics, palm oil and crude plunged. The central bank has cut its benchmark interest rate by 1.5 percentage points to 2 percent in three meetings since late November to support growth.

This week’s measures may be “too little too late,” Malaysian Opposition Leader Anwar Ibrahim said in a speech posted on his Web site yesterday, saying bureaucracy has hampered spending under the November plan. The government has disbursed almost 76 percent of the 7 billion-ringgit package, the state-owned Bernama news agency reported last week.

Falling commodity prices are capping government revenue from oil and palm oil taxes, and power struggles between Anwar’s opposition alliance and Prime Minister Abdullah Ahmad Badawi’s ruling coalition may distract efforts to boost the economy, according to Morgan Stanley.

Opposition Strength
“For the first time since independence in 1957, the opposition alliance is at its strongest,” Morgan Stanley economists Deyi Tan and Chetan Ahya said in a March 2 report. “The ongoing attempts at power consolidation on both sides could pose risks to the implementation and coordination of fiscal pump priming.”

Najib, who is also deputy premier, is due to replace Abdullah Ahmad Badawi as prime minister at the end of this month, a year after the ruling coalition ceded five states to the opposition in 2008 general elections. Last month, the government said it regained control of Perak state after three lawmakers left Anwar’s alliance.

The government may announce corporate and personal income- tax cuts, cash rebates to the poor, credit guarantees for small and medium-sized companies, and accelerate public projects, Citigroup Inc. economists Wei Zheng Kit and Leon Hiew said in a March 5 report.

The International Trade and Industry Ministry said last month it’s proposing grants for small businesses and cuts in sales and corporate taxes, as well as a reduction in contributions by employers to the country’s biggest pension fund.