Prime Minister Najib Presents Malaysia's Largest Budget Ahead of Elections -- 2nd Update

KUALA LUMPUR, Malaysia -- Prime Minister Najib Razak announced Friday his largest annual spending plan since becoming Malaysia's leader in 2009, as he seeks to shore up support for his government ahead of a general election in 2018.

The 2018 budget includes the highest-ever aid packages worth 6.5 billion ringgit ($1.5 billion) for rubber tappers, farmers and fishermen, who compromise a large cross-section of his government's support base.

The budget also includes the elimination of toll collections on three highways running through what are expected to be the most closely contested areas in the coming elections.

"This budget is the most important because it is a formula for initiatives that have been driving the country's economy since I became prime minister [in 2009]," Mr. Najib told parliament, wearing traditional blue Malay clothing to match his ruling coalition's colors.

The 280.25 billion-ringgit budget is 7.5% higher than the 260.80 billion ringgit allocated for this year, and comes as Mr. Najib's United Malays National Organization and the rest of the government coalition prepare for the polls.

The 2018 election, which is due around June next year, will be Mr. Najib's biggest electoral test since his government was embroiled in the scandal at 1Malaysia Development Bhd, or 1MDB, in 2015.

1MDB, which Mr. Najib established in 2009 to spur the country's economy and drive investment, is being investigated by authorities in several countries including the U.S. on allegations that range from money-laundering to misappropriation of funds. 1MDB and Mr. Najib have denied wrongdoing and said they would cooperate with any lawful international investigation.

"This is the classic election budget," said James Chin, a Malaysian academic who heads the Asia Institute at the University of Tasmania, said. "The budget was designed to get votes from the core UMNO voters, the Malay community and the B40 [bottom 40% household group] voters."

The Southeast Asian nation's improved economic performance since the start of 2017 and stronger oil prices helped provide the larger spending plan, and Mr. Najib, who is also finance minister, projected lower government deficits this year and next.

Mr. Najib said stronger domestic demand and exports would push up Malaysia's economy to grow between 5.2% and 5.7% in 2017, compared with the country's earlier official estimate of between 4.3% and 4.8%.

For 2018, the economy is expected to expand between 5.0% and 5.5%, he said. The nation's fiscal deficit will likely fall to 2.8% of gross domestic product next year, from 3.0% this year, he added.

The government's spending plans also include 6.8 billion ringgit to extend a program of cash handouts to seven million of the poorest Malaysians, and 3.9 billion ringgit to subsidize goods and transport, which will range from cooking gas to highway tolls.

Mr. Najib, who appeared in good spirits while giving his speech, also allocated significant sums to develop rural infrastructure and promised to cut income tax by 2 percentage points for people earning between 20,000 ringgit and 70,000 ringgit a year.

Special payment of up to 1,500 ringgit will also be paid to the 1.6 million civil servants in the country, who historically have been among the ruling coalition's most dependable supporters. The first payment of 1,000 ringgit will be paid in January next year, with the balance paid during the Eid al-Fitr holiday in 2018.

Write to Yantoultra Ngui at yantoultra.ngui@wsj.com

(END) Dow Jones Newswires

October 27, 2017 10:19 ET (14:19 GMT)