Malaysia: Government to revise Budget 2019 if oil prices drop below US$50 per barrel

A crude oil forecast of US$55-US$66 per barrel translates into revenue loss of around 2-5 billion ringgit or 0.1%-0.3% of Malaysia's GDP said UOB in a note on Thursday, in an update to Finance Minister's Lim Guan Eng's statement that the Malaysian government will only recalibrate its 2019 Budget if average crude oil price dips below US$50 per barrel.

Benchmarked against the government and Petronas's medium term view of US$50-US$60 per barrel for 2019-2021, the forecasted figure, based on UOB's current crude oil forecast, translates into a revenue loss of around 3.6-6.6 billion ringgit or 0.2-0.4% of GDP.

Malaysia's last budget recalibration took place on 28 January, 2016, when oil prices fell below US$35 per barrel for about a month. The 2016 Budget was revised based on a lower brent crude oil price assumption of US$30-US$35 per barrel from US$48 per barrel originally. This resulted in a revenue shortfall of 7.8-9.4 billion ringgit.

Senior economist Julia Goh added in the note that based on channel checks there is upside to the government's revenue from new tax measures announced and additional revenue from asset sales. The additional revenue gains could be between 4 and 8 billion ringgit while savings from introducing the targeted subsidy scheme could be around 6 billion ringgit.

"Hence, we think there is room to maneuver and prevent a slippage in the fiscal deficit targets," she said.