Economists say too early to institute budget review

  • Economy
  • Tuesday, 25 Dec 2018

KUALA LUMPUR: Economists in general say it is too early to institute any budget review given the fact that crude oil prices still remain uncertain at this juncture.

Sunway University Business School Professor of Economic Yeah Kim Leng said the decline in crude oil prices was a temporary phenomenon, pending further development on the supply side.

“We need to wait and see whether the Malaysian economy suffers as a result of the decline in crude oil prices.

“”As we know, the Organisation of Petroleum Exporting Countries (Opec) are still reviewing production cuts to stabilise prices.

“If they manage to further reduce supply, the price might rebound to range between US$60 and US$70 per barrel, the level Opec is looking at,” he told Bernama.

Finance Minister Lim Guan Eng said yesterday that the government would not recalibrate the 2019 Budget 2019 unless the the average crude oil price dips below US$50 a barrel.

Yeah said the government should monitor to see if prices drop sharply over the next six months to warrant any review and to ensure the fiscal deficit does not widen further.

“Year to-date, the average Brent crude oil price hovered around US$71.98 per barrel.

“After the first half of next year, if oil prices remain below US$70 per barrel, which is the government’s assumption, then there will be a need to review.

“But, with Opec reviewing the production cut coupled with prospects of demand picking up against a backdrop of modest growth for the global economy, demand for oil would continue to be moderately strong to support higher prices,” he said.

Yeah also said the budget review would require spending cuts as every drop of US$1 in oil price would mean a RM300mil deficit in revenue.

“Therefore, a fall of US$10 a barrel would work out to a whopping RM3bil in reduced revenue.

Yeah also opined that the government might not need to resort to a budget review if it can find other sources of revenue to offset the decline which included monetisation of assets and privatisation.

On the other hand, he added that lower oil prices would mean the government would pay less in corresponding oil subsidy which would work out to about RM3bil this year.

Bank Islam chief economist Mohd Afzanizam Abdul Rashid said the Budget 2016 was recalibrated when Brent crude fetched US$28 per barrel on Jan 20, 2016.

“Perhaps, when crude oil prices drop below US$30 per barrel, that could be used as a yardstick to determine if there should be any adjustments to budget allocations,” he said.

Additionally, he noted that Petronas would pay RM30bil in special dividends to the government next year and this would not be affected by current oil prices.

The dividends would be paid from Petronas’ reserves which currently stood at RM402bil, as at Sept 30, 2018, from its past cumulative profits and it would be sufficient for the government to proceed with the spending plans under the Budget 2019 allocation, he added.

In contrast, chairman of Malaysian Association Of Technical Analysts Datuk Nazri Khan Adam Khan said the government needed to recalibrate the budget as soon as possible as a proactive measure considering the uncertain economic conditions it was now facing. — Bernama

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