KUALA LUMPUR: Malaysia is relatively in a far better financial position than countries such as Venezuela, Nigeria, Iran and Russia whose revenues have been adversely affected by the plunge in crude oil prices.
Its diversified economy, the Goods & Services Tax (GST) and rationalisation of subsidies have provided a certain amount of cushion in revenue contribution, economists said.
Brisk domestic demand coupled with greater private investments locally and contributions from the manufacturing, construction, agriculture as well as the services sectors including tourism also lent to the nation’s coffers, they said.
The World Bank says Malaysia is a country with limited dependence on fuel commodity exports compared with other countries such as Algeria, Kuwait, Sudan and Venezuela where exports are at or exceed 80 per cent.
Affin Hwang Investment Bank vice-president and retail research head Datuk Dr Nazri Khan Adam Khan said falling oil prices have had a great impact on major oil producers such as Saudi Arabia which rely on petroleum for 70 per cent of its revenue as well as Nigeria, the largest oil producer in Africa.
However, Malaysia was no longer a significant oil producer with the government’s effort to lessen its dependence on oil revenue.
The country has moved more towards non-oil revenue with the implementation of GST, among others, helping to partially mitigate the effect of oil volatility.
“We are affected but not as badly as others,” he told Bernama here yesterday.
Brent crude, the global benchmark for crude oil, dropped three per cent to US$30.43 per barrel on Tuesday from the day before — the lowest level since April 2004.
Petronas reportedly estimated that oil price could average US$30 per barrel this year and that it would be tough for the oil corporation for the next two to three years.
Nazri Khan said oil revenue contribution declined to 20 per cent under the current administration from as high as 40 per cent in the previous administrations.
The GST is a prime example of not only introducing a pragmatic policy but a timely one at that for the broad-based consumption tax helps to reduce Malaysia’s dependency on Petronas dividends and petroleum-related revenues.
GST collection is set to increase to RM39 billion in 2016 from RM27 billion between April 2015, when it was implemented, and October 2015 when Budget 2016 was unveiled. This is in contrast with the contributions from Petronas and oil-related sectors which are anticipated to decline to RM31.7 billion in 2016 from RM44 billion in 2015. An economist from MIDF Research said the percentage of oil-related revenue to government’s overall revenue was expected to decline further to 14 per cent this year from an estimated 20 per cent in 2015.
Despite the reduction in oil-related revenue, he said the country’s fiscal deficit would not be affected much, due to the government’s continuous effort to become less dependent on oil revenue.
“If the government fails to reduce the dependency on oil price, our fiscal position and financial market would be in a much worse situation now.
“Malaysia would experience a shortfall of revenue by approximately RM36 billion in 2016, which could translate into a fiscal deficit of approximately 6.1 per cent,” he added.
As such, he said, the government has successfully reduced its dependency on oil towards more diversified and stable sources of revenue, hence helping the economy from being affected much from the fall in crude oil prices. As for the GST, he said MIDF Research estimated it to contribute an additional revenue of RM20.5 billion for this year.
Revenue would have remained the same under the Sales and Service Tax (SST).
He said the additional tax revenues helped to cushion the impact of lower oil revenues obtained last year.
“If not for the implementation of GST, Malaysia could potentially see a higher fiscal deficit in 2015 and 2016,” he added.
Nazri Khan also concurred with the government’s move to recalibrate the 2016 Budget which he said was the norm in other countries because of reduced revenues due to plunging oil prices.
He said the adjustment meant that the previous assumption of the oil price at US$48 per barrel was no longer tenable and the right changes needed to be made.
The Prime Minister had announced last week of a budget adjustment to reflect the realistic situation of global challenges including the economic
slowdown in China and falling oil prices.
Acknowledging the challenges as being out of government control, Najib said the budget adjustment was a pragmatic approach by the government to ensure the expenditure was more precise.
The adjustments will involve, among others, measures to optimise expenditure and boost domestic demand as well as the role of government-linked companies in investing more locally.
Maybank Investment Bank, in a research note, said today the country’s oil and gas industry was on a firmer ground now from a year ago as players adapted to the low oil price environment through cost rationalisation, capital discipline and cashflow preservation. It said cost cuts and cash flow prudence remained the industry players’ core initiatives for this year while financial sensibility and resilience were admirable qualities under current circumstances.
“An absolute recovery is still a distance away but the overall risk-reward balance has improved,” it added. — Bernama