The plunge in global oil prices will lead to much lower Petronas – and consequently, government – revenue and worsen the government’s fiscal deficit.

Some key points extracted from this report in the Edge:

– low oil prices are a huge bonanza for all of Asia, except Malaysia

– while Malaysia is now technically a net importer of refined oil products, if crude oil and gas are included, Malaysia remains a net exporter, indeed the only one in Asia.

– Every US$10 drop in global oil prices translates into 0.2% decline in Malaysia’s trade balance…. Since oil prices are down over US$35 from their US$105 peak earlier this year, that’s 0.8% of the gross domestic product (GDP) decline in trade balance just on crude oil. “If you add in gas, petroleum products, and all other things you are probably looking at 1.2% or so GDP decline in trade balance…”

–  if oil prices hover around US$75 per barrel, Petronas payments to the Malaysian government could be 37% lower next year at RM43 billion…. about RM25 billion (or 2.3% of GDP) lower than the projected payment this year of RM68 billion…

–  a RM25 billion fall in Petronas contributions to government coffers is larger than the total fiscal savings from the recent scrapping of fuel subsidies, which (is estimated at) at about RM18 billion (or 1.7% of GDP).

– Malaysia is now likely to miss its original 3% fiscal deficit target for next year… “We now expect fiscal deficit to come in at about 3.8% of GDP in 2015, widening from 3.5% of GDP this year” …

– Oil-related revenue contributes close to 30% of annual government revenues….

– Falling oil prices could also hurt the ringgit.

Malaysian Ringgit to Singapore Dollar Exchange Rate Graph - Dec 3, 2004 to Nov 26, 2014

– “In an environment where the US Federal Reserve (Fed) is looking to normalise interest rates and the US dollar is strengthening, things could be bad for flows that are interest-rate sensitive,” the Nomura economist said. “Falling oil prices mean Malaysia’s current account surplus narrows further, and therefore there is a smaller buffer to counter capital outflows particularly if the Fed moves earlier than anticipated.”

– Weaker yen and quantitative easing in Japan are also playing major roles in Malaysia because Japan is a big importer of Malaysian commodities as well as other goods. Weaker yen makes it more expensive for Japan to buy those goods so there would be more pressure on the ringgit,” he argued.

– Nomura is keeping GDP growth target around 5% for 2015 though Paracuelles said the risks are to the downside. “There is also the issue of slowdown in China, and a generally weaker global economy, and as a fairly open, export-oriented economy Malaysia is more vulnerable than many of its counterparts.”

Strange, isn’t it? Price goes up, we lose. Price goes down, government (i.e. public) loses. Heads they win, tails we lose.

Thanks to blog visitor Simon for the link.

 

19 COMMENTS

  1. Keynesian economics simpleton multiplier effect and planned economic go bankrupt, what do you expect? Miracles?

    By the way, the untold story of ringgits going down has nothing to do with low oil price. Basic economy : if you don’t stop the stupid keynesian economics money printing dogma, a legal tender will never falls against foreign currency.

  2. Are we the Rakyat supposed to be happy with this bleak scenario. I believe Najib’s Government is on the brink of Collapse. And well he deserve it for lying and cheating and embezzlement akin to the Arabs in the collapsed MidEast governments of Tunisia, Libya and Egypt.
    Unfortunately. Malaysians by majority are inert masses. They will accept it as Divine Will not bring the Change we sorely need.
    And the Government can act with impunity to further burden the 30 million majority compared to the Useless, immoral UMNO leaders especially PM Najib pandering to his ugly and rotten to the core Wife!
    What will take them to shake the earth? Nothing, that is why the UMNO `zalimin’ will inflict their dirty handiwork till Kingdom Come.

  3. BN politicians usually walk free from any scandal. The RCI on Projek IC in Sabah is the latest case.

  4. ananars,
    what a great bn govt.
    PKFZ, how much the govt gonna lose?
    thought the fiasco will be behind us and be the last.
    whats IMDB gonna lose? Who knows.
    well, i wont be surprise you be like the village … from kelantan that we are jealous of IMDB success that out of 3 years, IMDB reported profits for 2 years.
    and talking about price increases. TNB didnt raise the tariif? petrol is down rite by 4 cts recently? dumbo, its cheaper now in US than Malaysia, which is net exporter of oil.
    well, i can only give you credit that you are not a si-bangang. at least, you have not wrote against Najib and co for in all probability you are just another (paid?) troll of UMNO.
    talking about inciting tension, why dont u check it out on some of the recent speeches by some UMNO delegates? I reserve my comments. PERIOD.
    after yang, its ananars now. sigh.

    • PKFZ at least RM12 billion up in smoke and many trusted to care walk free from responsibilities eg Kong Chong Ha.

      1MDB learns courts can never get hold of culprits so the cycle of greed/mismanagement continues …….

      • Just stumbled upon an article in The Sun (Nov 26, 2014) under the Citizen Nades weekly column entitled ‘RM12.5b and counting’ which provided the disturbing account of the attempts to bury the PKFZ fiasco with the dropping of a civil suit by PKA against KDSB (allegedly for double charging of RM720 million) being the latest move. The current chairman of PKA is none other than Tan Sri Kong Cho Ha, the former transport minister who was dumped by the voters in GE 13. He was also alleged to be one of the prime movers within the MCA during its leadership crisis to remove the then president, Ong Tee Kiat, who was steadfast in getting to the bottom of the PKFZ scandal.

        There is certainly a sense of deja vu pertaining to the series of events that is taking place. Remember MAS, BMF or other major financial scandals involving government linked institutions? First, there would be shouts with vows and promises by the high ranking government officials which in many occasions includes the PM and other cabinet members that they were viewing the matter seriously, no stone would be left unturned, that the culprits responsible would be seriously dealt with, etc. This would then be followed by the formations of committees or some form of task force, initiation of court proceedings etc. to drag the issue until the public gets tired and move on to more current issues. In the intervening period, all attempts by the lawmakers and other interested party to seek answers to the scandal would hit a brick wall with the typical ‘still under investigation’ or ‘sub judice’ reply. Then, when the scandal has finally cooled down, all the actions, irrespective of those in process or pending, would be quietly dropped and the case would be closed without much fanfare. Putting it simply, after deafening public outcry, public posturing by the power that be and lengthy, costly investigations and court proceedings, the final conclusion would be no one suffers severe punishment, millions/billions of ringgit burnt in the scandal together with fruitless investigations and actions, and above all else, the culprits laughing all their way to the banks.

    • Some of the speeches comes from small time delegates unlike Pakatan with its defacto leader Anwar that said the Chinese are stupid or from PAS leaders that said they wants hudud and an islamic state. Although some small UMNO delegates want vernacular school out, the head Najib said vernacular school shall continue as in the Constitution. Pakatan leaders like Anwar and a host others break gate and storm university campus including running the road and breaking the law. Do you see any BN leaders including Najib doing that. PKFZ still has its assets so is 1MDB. Everyday you will see stooges from both sides of the fence including Anil blog making idiotic suggestion or their supporters running road, storming public places etc etc. . Can you take them for real.!!!! The only real thing is the leader and Anwar, Hadi and LGE has shown very bad examples compared to Najib and most of BN coalition leaders.

  5. wow wow wow, Many thought that we have a good state govt. Yes Head or tail we lose. Its not about increasing of water tariff, assessment rate or stall rentals etc etc that have been increased by the CAT govt recently. Now there is something that is “`free all along“` will now be charged by the state govt to the people of Penang. There is a dialogue on Waste Generator Pay at Auditorium A, Paras 5, Komtar, Penang on 4-12-2014. Previously it was free when the dustbin van come and collect your sampah or when you disposed it into the public MPPP dustbin. Hahaha, now its not free anymore. You will all be charged for disposing your rubbish. Why is Anil keeping quiet on this. !!!

  6. Felda Global Ventures Holdings Bhd (FGVH) was the worst performer among plantation stocks in Bursa Malaysia in the last quarter on derivative contracts losses and exposure to risky trading instruments.

    Shareholders of Petronas and FGVH should be worried right now. No Christmas cheer.

  7. Head or tail whatsoever, the govt will fulfill its promise to the people. Last election Najib promise Han Chiang college university status. That promise has been fulfilled. TV 2 reported today that Han Chiang is now a university

  8. Good time for Petronas to stop its F1 sponsorship, and to terminate all local motor Cub Prix tournaments in the coming years.

    Will Dr M find another George Soros to blame?

  9. Head or tail, most important we must be level head and have a stable govt and a constructive opposition, not one that incites tension, run the street or be instigated and taken in by the lies and deception of politicians in their lust for power or by US and Western countries out to stamp their influence

    • Malaysians, as a whole are quite level headed politically as the public protests are generally peaceful despite being provoked or roughed up by some thuggish groups who are against the theme or cause of the protests. Barring the instances where some thuggish self-proclaimed champions of some lofty issues who threatened to burn party buildings or (intimidate/harass) speakers at allotted public places, we can actually see more rowdy behaviours during local football matches.

      • What did you see when you have leaders of the opposition that break gates and barge into public universities, having an illegal organization with members that use violence. Did you see any difference from what you have describe or just in a state of self denial

  10. 90% of Malaysians now being over-reliant on BR1M once the BN gomen cutdown on payouts will have severe repercussions as the rakyat now expects Najib to deliver afterall his over-the-top promises (janji). If the rakyat feel the pinch, then sayonara to BN prelude to GE14.
    BN overdependent on Petronas oil $, once suffocated by global economic terms, the BN folks can ‘rejuvenated’ fast enough to recover and hence OIL finally the one that snares to BeEnded.

    • When oil prices go up, the opposition will be so happy that high prices will make the people suffer and BN go bust. When prices go down they will say that the govt will is like kangkung and will have no money and the country will be bankrupt. They have been saying this for more than 10 years hoping that the country will go bust just in their lust for power without constructive ideas for the country. But the country is still strong even after the 1997 world financial crisis and when Anwar as finance minister (allegedly) mismanage the forex exchange and lost ten of billions. Then he blame it on the PM. I believe we will see through this world disorder and financial crisis but the opposition will use every opportunities to capitalize on it. At every opportunities they will create deception after deception with rallies, barging and breaking gates of UM, calling the judiciary a farce, thousand of bangla voters and so on and so on. And we have so many people that that continue to believe in these deception

      It will in fact be a blessing in disguise for the country as inflation rates will remain low but the opposition is keeping quiet on this. Like many hardcore Pakatoon, they will always be delving in self delusion and the Sarawak election will once and for all prove it when Pakatan will be trounced..

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