Malaysians Brace for Austerity as Najib Cools Spending: Economy 

(Bloomberg) – Najib went on a spending binge to woo voters before the May election, including smartphone rebates for youths, household electricity subsidies and higher wages for civil servants. He’s now focusing government spending on more specific areas, saying public projects with low import content will continue while those requiring more imports will be “sequenced accordingly.” 

Malaysian Prime Minister Najib Razak returned to power this year with the help of a spending spree that boosted consumption. Now voters could feel the pinch as he tries to appease a different group: rating companies.

Najib’s government raised subsidized fuel prices for the first time since 2010 this month and has said it will delay some infrastructure projects, seeking to contain the budget gap and shore up the current account after Fitch Ratings cut Malaysia’s credit outlook to negative in July. It is also considering a goods and services tax in the 2014 fiscal plan due Oct. 25.

The shift toward austerity could cool the domestic demand and investment that kept Malaysia’s gross domestic product rising an average 6 percent in the three years through 2012. The country joins Asian emerging markets such as Indonesia in confronting slower growth as they deal with the side effects of spurring local consumption, undermining the region’s role as the main driver of global expansion.

“It’s payback time,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG, who cut Malaysia’s 2013 growth forecast to 4.4 percent from 5 percent this month. “Current-account deterioration, fiscal balance deterioration, higher leverage, all these things are the price you have to pay” for boosting domestic demand, he said.

Along with rising national debt and a dwindling current-account surplus, Malaysians have also accumulated Southeast Asia’s highest level of household borrowings at 80.5 percent of GDP, according to Bank of America Merrill Lynch. The central bank in July imposed curbs including a shorter maximum tenure for mortgages, saying household indebtedness has expanded by an average of 12 percent per annum in the past five years.

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