A review of Budget 2016 is inevitable as every 10% decline in the Brent crude oil price, ceteris paribus, oil revenue is likely to reduce by RM3.2 billion from the initial revenue projection for 2016 while the budget shortfall could rise to 3.4%, according to AmResearch.
The research house is commenting on a statement by Minister in Prime Minister’s Department Datuk Seri Wahid Omar that the government will review Budget 2016 if oil prices continue to stay low.
Should global crude oil remain weak, contribution from oil revenue is likely to reduce which could be strenuous for the overall budget deficit in 2016. The government had planned for the Budget 2016 based on the assumption that Brent crude would average at US$48/barrel for 2016.
Based on the crude oil price assumption of US$48 per barrel for Brent, the government expects contribution from oil revenue to amount to RM31.7 billion in 2016 while budget shortfall could register at 3.1% of gross domestic product (GDP).
“Note that total government revenue is expected to amount to RM225.7 billion (or +1.4% year-on-year) for 2016, driven by an increase in tax revenue,” AmResearch economist Patricia Oh Swee Ling pointed out in an economic update.
At the close of Thursday’s trading, the West Texas International (WTI) and Brent crude oil prices settled at US$34.95/barrel and US$37.06/barrel, respectively. These compare to Wednesday’s close for WTI at US$35.52/barrel and US$37.19/barrel for Brent.
“Elsewhere, we gather that exports of crude oil, liquefied natural gas (LNG) and petroleum products had contracted throughout this year,” revealed Oh. “As of year-to-date (YTD) October 2015, crude oil /LNG /petroleum products had posted a decline of -25.0% /-25.6% /-24.1% y-o-y, respectively.”
Despite the contraction for exports of petroleum in 2015, Malaysia’s total exports had advanced by 1.5% YTD. In particular, total exports accelerated by 8.8% and 16.7% during the recent months of September and October 2015, respectively.
Elsewhere, Wahid also reiterated that Malaysia’s fundamentals remain strong as the country has diversified resources, export markets and income streams from other industries besides oil and gas (O&G).
He further noted that the government would continue to support the growth of businesses and companies to ensure any potential impact on the economy would be cushioned should oil prices stay at the current low level.
“That said, growth in the manufacturing segment suggests that Malaysia’s GDP is likely to maintain a relatively stable growth in 4Q 2015,” projected Oh. “Malaysia’s healthy trade balance during the start of 4Q 2015 suggests that GDP growth in 4Q 2015 will be supported by the inflows through net trades in tandem with the positive development in the domestic front.”