Current Downtrend In Crude Oil Prices Not Likely To Impact Government Coffers - Economists

By Alan Ting KUALA LUMPUR, Aug 4 (Bernama) -- The current weak crude oil prices is not expected to significantly impact Malaysia's economy, nor hinder the government from adopting a people-centric approach for Budget 2017, according to economists. They pointed out that the recalibrated Budget 2016, which was tabled by Prime Minister Najib Razak on Jan 28, has already taken into account the sharp drop in world oil prices, which were then hovering between US$30 and US$35 per barrel. Oil prices had risen above US$50 a barrel between late May and June amid tighter oil supplies following disruptions in a few oil producing countries. But the rally faded as higher prices spurred more crude output and yesterday (Tuesday), oil fell below US$40 a barrel for the first time in more than three months over concerns of a supply glut. Sunway University Business School economics professor Dr Yeah Kim Leng said the recalibrated Budget 2016's deficit target of 3.1 per cent was still within reach as long as crude oil prices remained above US$30 a barrel. "Of course, the recalibration (of the budget) helped as they had projected oil prices to be at an average of US$35 per barrel," he said. Yeah said although the overall projected trajectory of crude oil prices still played an important role, the government can take comfort in the fact that oil revenue now only made up about 19 per cent of the government's coffers, compared to 30 per cent in 2014 when the average oil price was US$100 per barrel. "With (contribution from) the GST (Goods and Services Tax), we can expect the next budget to be able to deal with the shortfall brought about by the lower oil revenue. There's an estimated US$9.63 billion (RM39 billion) in the government coffers for 2016," he said. (US$1 = RM4.04) The GST was implemented on April 1, 2015 and last year alone, the Royal Malaysian Customs Department collected over US$7.41 billion (RM30 billion) in consumption tax. While the government is confident that it can meet its budgetary requirements, another economist believed that more should be done to ensure medium- and long-term growth of the overall economy. "Although the (current) crude oil price is above the projected level (US$35 per barrel), unfortunately many subsidiary services (relating to oil and gas) are suffering from a lack of jobs. This will impact our economy's performance," said former dean of Universiti Malaya's Economics Faculty Dr Fong Chan Onn. However, Fong, who is also former Human Resources Minister, said the prudent approach taken by the government in its spending in the last two years, while maintaining its basic services, has helped to put its budgetary requirements in the right perspective. "We are still in a good position as China is still on expansion mode and we still can attract some investments from China and Japan. "China's expansion is mainly due to its One Belt One Road (OBOR) initiative which is aimed at capturing the world market," he said. According to reports, OBOR would provide massive investment and trade opportunities for Malaysia and 64 other nations populated by 4.4 billion people across three continents. The initiative will see Chinese corporations building roads, railway lines, ports and power grids in many parts of Asia, Africa and the Middle East. Chinese investments under this plan have already started streaming into Malaysia and since 2014, they have invested in property development in Iskandar Malaysia, Johor; Malaysia-China Kuantan Industrial Park in Kuantan; Kuantan Port upgrade project; and the massive Bandar Malaysia development in Kuala Lumpur. -- BERNAMA