Kuala Lumpur, June 26 - Malaysia shelved some large building projects on Thursday and pledged to spend $9 billion more to boost rice production and ease poverty as the government seeks to quell public anger over rising prices.
High food and fuel prices have rankled Malaysians, threatening to unleash street protests that could break Prime Minister Abdullah Ahmad Badawi's increasingly brittle administration.
The government did not give the total value of the spending cuts or say how the extra spending would affect the budget this year.
In a mid-term review of a state development blueprint, the government stuck to its average annual economic growth target of 6 percent for 2006-2010, saying domestic spending would offset the effects of weak global demand.
The government said it was reviewing spending to focus on projects that would benefit the public as high energy and building material prices strain its finances.
To free up money for other projects, the government put on hold a 1.5 billion ringgit ($461 million) road project and a 2 billion ringgit monorail, both in northern Penang state, said Sulaiman Mahbob, director general of the Economic Planning Unit.
Penang is one of five states that fell to opposition rule in March national elections, when the ruling coalition suffered its worst election result in decades.
The government also deferred plans to build administrative centres in the states of Kelantan, Sarawak and Pahang for an unspecified sum.
It allocated 30 billion ringgit more to improve health, raise rice output, build schools and rural roads and reduce poverty, bringing development spending to 230 billion ringgit under the plan that covers 2006-2010.
"Development projects will also be reprioritised giving priority to people-centred projects," the government said in the review report.
Abdullah is battling perceptions that his government hasn't done enough to shield the public from inflation while it reaps hefty gains from high energy prices and doles out state contracts to well-connected tycoons.
Malaysia, Asia's largest net oil exporter, earns 250 million ringgit a year in extra revenue for every $1 rise in crude prices.
It raised petrol prices by 41 percent and diesel by 63 percent this month as part of a broad revamp of its energy price system that would save it $4.23 billion.
The government said on Thursday it would continue to gradually cut fuel subsidies, but did not elaborate.
LOWER DEFICIT, HIGHER INFLATION
Despite the planned increase in development spending, the government said it would bring its fiscal deficit to 3.2 percent of gross domestic product in 2010, down from an earlier goal of 3.4 percent.
The government expects a deficit of 3.1 percent this year, compared with 3.2 percent last year, but economists were sceptical whether it was feasible.
"Given the environment of external uncertainty as well as local pressures, such as prices, we are looking at a potentially weaker growth for this year and next year," said Manokaran Mottain, senior economist at AmInvestment Bank.
"And in this situation, it would be difficult to maintain the fiscal deficit at the current levels."
Annual inflation was expected to average 3-4 percent in 2008-2010, above the 2 percent recorded last year, the government said.
Inflation hit a 22-month high of 3.8 percent in May and is expected to rise further, at a time when the authorities are eager to keep interest rates low to support domestic demand.
At 3.50 percent, Malaysia's key interest rate is among the lowest policy rates in the region.