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Ringgit slides with oil as Najib flags US$7 billion shortfall

Tuesday, December 8, 2015 - 10:40
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Malaysia's ringgit halted a three-day gain as Brent crude fell to a six-year low, damping the outlook for the nation's finances just as Prime Minister Najib Razak flagged a 30 billion ringgit (S$9.84 billion) revenue shortfall in 2016 due to oil.

[KUALA LUMPUR] Malaysia's ringgit halted a three-day gain as Brent crude fell to a six-year low, damping the outlook for the nation's finances just as Prime Minister Najib Razak flagged a 30 billion ringgit (S$9.84 billion) revenue shortfall in 2016 due to oil.

The currency dropped 0.9 per cent to 4.2517 a dollar as of 10:04 am in Kuala Lumpur, after climbing 0.4 per cent in the previous three days, according to data from local banks compiled by Bloomberg. Brent slumped 5.3 per cent overnight, the biggest decline since early October. That clouds the outlook for Malaysia, the region's only major net exporter of oil, which has retreated this year and helped make the ringgit the region's worst performer.

The comments by Najib, cited in a New Straits Times report, may be a setback for the government as it seeks to trim the budget deficit and eliminate a shortfall that's plagued the country since 1998. Sentiment was just starting to improve as debt-ridden state investment company 1Malaysia Development Bhd. gears up to sell off some property assets in Kuala Lumpur valued at 11 billion ringgit. That comes hot on the heels of an agreement last month with China's General Nuclear Power Corp. to offload its power assets for 9.83 billion ringgit.

"The plunge in oil prices overnight in reaction to last week's Opec decision not to cut production caused a selloff in the ringgit," said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "The lower oil prices will have an impact on the fiscal position if they stay this low."

Brent edged up 0.5 per cent to $40.94 a barrel early in Asia Tuesday, less than the $48 assumption in Najib's 2016 budget. While Goh said the 1MDB asset sale means there's no need for the government to bail it out, the reduction in oil prices will put the fiscal-deficit target at risk and some policy changes such as spending cuts will be needed.

The Organization of Petroleum Exporting Countries on Friday refrained from cutting output to shore up prices amid a global glut, and instead abandoned a long-time strategy of limiting daily production quotas. Lower oil may complicate Najib's efforts to reduce the budget deficit to 3.1 per cent of gross domestic next year, from the targeted 3.2 per cent in 2015.

1MDB will enter into a sale and purchase agreement to sell its 60 per cent stake in the Kuala Lumpur property project known as Bandar Malaysia by Dec. 31, the Malaysia Reserve newspaper reported Tuesday, citing a company statement.

Malaysia's 10-year sovereign bonds declined. The yield rose three basis points to 4.24 per cent, according to prices from the stock exchange.

BLOOMBERG

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