Malaysia Revises Budget And Growth Targets Amid Falling Oil Prices
|Author:||Ms Sue Yong|
Cheaper oil is not great for everyone: Our Kuala Lumpur MD looks at the impact of falling oil price on the Malaysian economy.
Malaysia, a major oil producing country in Asia, draws a big chunk of its government revenue from the energy industry. In order to minimise the effect of plunging oil prices on the economy, Southeast Asia's third-largest economy took a reality check to revise its budget and growth targets.
Falling oil price
For the past four years, crude oil was selling at an average price of US$109 per barrel before it started to plunge more than 50% seven months ago. In fact, the first 20 days of 2015 saw the commodity trading at only US$49.662 on average. This is mostly due to the weak energy sector amid a slowdown of the global economy, the oversupply of the commodity caused by the booming US shale oil industry, and OPEC's decision to defend its market share by maintaining existing production capacity.
Oil prices are expected to remain low for the rest of 2015 and the conditions may drag on for years if the economic outlook remains unchanged.
While tumbling oil prices tend to be a windfall for Asia Pacific - most countries are net energy importers, and so set to leverage the low energy price to stimulate domestic growth - Malaysia's high dependency on energy-related revenue means it emerges as the unprecedented economic loser at times like this.
As the second-largest exporter of liquefied natural gas (LNG) and a major oil producer in Asia, Malaysia draws a big chunk of its government's revenue from the energy industry. In 2013, Petronas (the state-owned petroleum company) contributed US$20.2 billion in tax, royalties and dividends to the Malaysian government, making up 30% of the national budget. Late last year Petronas warned that its payment in 2015 might be 37%, or US$7.4 billion, lower than the previous year if the oil price hovered around US$75 a barrel. Today, it is trading below US$50.
On a positive note, this year Petronas will settle its payout to the country based on 2014's crude oil price ($97 per barrel in average), so a nosedive in Malaysian government revenue is not expected at least for this year. But Malaysia still faces the threat of a current account deficit with the drop of revenue from commodity exports.
The country's budget has been in the red since 1999; cheap oil would significantly undercut export income and drag it into a current account deficit. If the oil price deteriorates...
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