PUTRAJAYA: In a surprise turn of events, the Government has disclosed that Malaysia is a beneficiary of declining crude oil prices because the country is a net importer, and not exporter, of the commodity and petroleum products, if liquefied natural gas (LNG) was not in the equation.
Treasury secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah said Malaysia had turned into a net importer of crude oil and petroleum products since 2014.
So contrary to general perception, the fall in crude oil prices, he said, would not lead to a drastic decline in export receipts or result in a current account deficit for Malaysia.
According to data revealed by the Finance Ministry, Malaysia’s net exports of crude oil have been on a declining trend in the last 10 years. In 2005, Malaysia produced 60,000 barrels per day (bpd) and between January and November 2014 it was down to 48,000 bpd.
Between January and November last year, the country’s net exports of crude oil totalled RM7.7bil, while net imports of petroleum products stood at RM8.9bil.
“Overall, Malaysia is a net importer of crude oil and petroleum products, with a deficit of RM1.2bil (during the period in review),” Mohd Irwan said.
“Hence, lower oil prices will not adversely impact net export receipts,” he explained during a panel discussion on the country’s current economic development and government’s financial position here yesterday.
The Ministry’s conclusion, however, did not include LNG, for which Malaysia remained a major net exporter.
On that note, Mohd Irwan conceded that the impact of falling oil prices would be greater on the country’s net LNG receipts, estimating that a 30% decline in oil prices would reduce net export receipts of the commodity by RM20bil.
Global crude oil prices have plunged more than 50% due to oversupply amid weak demand in the last six months.
The international benchmark Brent crude, for instance, was traded at around US$48 per barrel yesterday, compared with US$115 per barrel in mid-June 2014.
Most analysts had in recent months voiced their concerns over the impact of falling oil prices on Malaysia’s economy. Intensifying worries over the possibility of the country slipping into twin deficits – a situation where an economy is running both fiscal and current account deficits – have exacerbated capital outflow from Malaysia, resulting in the significant weakening of the ringgit in recent months.
In stressing that such concerns were unfounded, the Government said Malaysia was still expected to register a healthy current account surplus, albeit at a lower level than last year.
Based on the revised oil price assumption of US$55 per barrel for Budget 2015, Malaysia’s current account surplus this year was expected to be around 2% to 3% of gross national income (GNI), down from the estimated 5.1% of GNI last year.
“Even if oil prices were to drop further to US$40 per barrel, Malaysia’s current account would remain in a surplus (position),” Mohd Irwan said.
In a special address on the country’s current economic development and financial position yesterday, Prime Minister Datuk Seri Najib Tun Razak said the Government had revised downwards its forecast for average oil price to US$55 per barrel for Budget 2015.
During his speech, Najib, who is also Finance Minister, highlighted a series of fiscal measures to enhance revenue and reduce operating expenditure to mitigate the effects of lower oil prices on the country’s economy.
Under the revised Budget 2015, Malaysia’s gross domestic product (GDP) growth estimates had been lowered to 4.5%-5.5% (from the earlier estimate of 5%-6%), while fiscal deficit-to-GDP ratio was expected to be slightly higher at 3.2%, compared with the earlier target of 3% this year.
“A revised 4.5%-5.5% estimate is still a credible growth (rate),” Mohd Irwan said, while noting that the revised fiscal deficit target was also more realistic and achievable under the current global economic conditions.
“It is still an improvement from the estimated fiscal deficit of 3.5% of GDP in 2014,” he said.
Mohd Irwan stressed that even if oil prices were to dip below US$55 per barrel, the Government would strive to maintain its 2015 fiscal deficit target at 3.2% of GDP.
He said the Government had already lined up pre-emptive measures in the worse-case scenario.
“Overall, we are still on a fiscal consolidation track, with the aim of achieving a balanced budget by 2020,” Mohd Irwan said.
Meanwhile, he said the Government expected dividend from national oil company Petroliam Nasional Bhd (Petronas) in 2015 to remain largely intact.
“The dividend from Petronas is based on oil prices in the preceding year,” he explained.
“We don’t expect to see much change in the dividend from Petronas because the average oil prices in 2014 were still strong despite the downtrend towards the final quarter of the year,” he said.
According to previous reports, Petronas was expected to contribute around RM27bil in dividend to the Government this year.
Brent crude averaged about US$100 per barrel last year.
Under the revised Budget 2015, oil and petroleum-related income was expected to constitute 21% of total government revenue, compared with the original estimate of 26%.