The government will increase development spending by RM10 billion over the next 18 months and may reduce subsidies on petrol and diesel to raise the money, local media reported today.

"The government has decided to raise the Eighth Malaysia Plan development ceiling by RM10 billion to RM170 billion," said the Minister in the Prime Minister's Department, Mustapa Mohamed.

Malaysia had previously approved a development budget of RM160 billion for 2001 to 2005.

"The additional ceiling is to ensure that all high priority projects continue to be implemented, subject to the current government stance of fiscal prudence and consolidation," he said in a statement to the official Bernama news agency.

"The implementation of the high priority projects would continue to generate economic activity in the context of achieving our socio-economic agenda and Vision 2020," he said, referring to a plan to raise Malaysia to developed-country statusby the year 2020.

Despite the increase in the development ceiling, the budget deficit as a ratio to gross domestic product (GDP) would continue to narrow for the remaining period of the current plan and into the Ninth Malaysia Plan, he said.

The deficit was expected to be around 4.0 percent of GDP for 2005, he said.

No mega projects

Prime Minister Abdullah Ahmad Badawi said the additional allocation would not involve any "mega projects" but would focus on those generating economic growth.

The government has been cutting back on mega projects since Abdullah took over from his predecessor Dr Mahathir Mohamad last October, who had a penchant for grandiose schemes.

The country's economic situation is now in a healthy state, Abdullah said, after GDP grew 7.6 percent in the first quarter of 2004.

"If we attain a high growth rate in the second quarter of the year, there are prospects for us to achieve higher economic growth this year. This will provide strength to our economy in 2005," he was quoted as saying by Bernama .

Bernama , citing government sources, also said the government may reduce the subsidies it pays for petrol, diesel and liquefied petroleum gas (LPG) to offset its financial burden and channel the money towards development projects instead.

Malaysia's petrol prices, at RM1.37 per litre, are the lowest in the region apart from Brunei.

The government paid a total of RM1.4 billion in subsidies in the first six months of this year, it said. - AFP