Cheaper oil points to lower growth, higher fiscal deficits for Malaysia

IN an environment of low oil prices, most countries would have reason to celebrate. But not Malaysia.

Cheaper oil usually means lower costs, lower inflation and a generally better base to drive growth forward. But for Kuala Lumpur, low oil prices mean less money for the government which derives almost a third of its revenue from the national oil company Petronas. Over the weekend, Petronas warned that the government should brace itself for lower dividends next year as the company's profits slide. Global oil prices are at five-year lows and firmly below US$70 a barrel.

Petronas president Shamsul Azhar Abbas said that if prices hovered around US$75 a barrel, payments to the government might be 37 per cent lower next year at RM43 billion (S$16.4 billion), or RM25 billion (2.3 per cent of gross domestic product, or GDP) lower than the projected payment this year. That's a lot of money not earned and is, unfortunately, larger than the savings from the recent scrapping of fuel subsidies, estimated at around RM18 billion.