Nation’s oil revenue could fall by RM11b if oil hits US$45

Malaysia formulated its RM314.5b Budget 2019 based on an average crude oil price of US$70 per barrel


A DECLINE in global crude oil price to US$45 (RM184.50) per barrel could shave RM11 billion in the federal government’s revenue this year, said Oversea-Chinese Banking Corp Ltd (OCBC Bank).

OCBC Bank chief economist Selena Ling said such decline in federal revenue would happen only if contribution from other revenue sources remains stagnant.

Malaysia formulated its RM314.5 billion Budget 2019 based on an average crude oil price of US$70 per barrel.

The simulation estimated that the federal government could see a decline in revenue by RM3.9 billion on oil price assumption of US$65 per barrel, RM5.8 billion (US$60), RM7.6 billion (US$55), RM9.4 billion (US$50) and RM11.2 billion (US$45).

In contrast, federal revenue is expected to rise by RM2 billion on oil price of US$80 per barrel, RM6 billion on US$90 and RM10.2 billion on US$100.

“We think oil prices will be quite subdued. We really don’t see that much upside because of the supply and demand story. We may see West Texas Intermediate (WTI) going up probably to a maximum of US$65,” she told a media briefing last Friday.

The oil price has been volatile in the last six months, from a high of US$80 to a low of US$50 per barrel.

WTI stood at US$53.76 per barrel, while Brent closed at US$61.69 last Friday.

OCBC Bank expects WTI and Brent crude oil prices to average at US$58 and US$63 respectively, this year.

Ling said the pressure for the government to look for new sources of tax revenue is imminent, following the replacement of the Goods and Services Tax with the Sales and Services Tax last year.

The government has announced that it is exploring new revenue sources namely sugar tax, digital tax, gaming duties, travel levy and heavy crackdown on illicit cigarettes.

“There is no clarity on how fast those new resources are coming in. It is hard to predict how much contribution they can make,” Ling added.

She said new revenue streams such as tax on digital and e-commerce companies are harder to be quantified. Ling said taxes which have been implemented in other countries, for instance the sugar tax, could be predicted though the numbers will not be significant.

On macro economy, OCBC Bank forecasts Malaysia’s GDP to grow by 4.4% this year, driven by private consumption amid a slowing global economy and ongoing government’s fiscal consolidation.

Fiscal deficit is estimated to hit 3.7% of GDP in 2018, before easing to 3.4% in 2019, 3% in 2020 and 2.8% in 2021.

Malaysia’s sovereign credit ratings currently remain positive as S&P Global Ratings graded A- on Malaysia, Moody’s Investors Service Inc at A3 and Fitch Ratings Inc at A-.

Ling said the ringgit is expected to test the RM4 level against the US dollar, thanks to weakening greenback and dovish US Federal Reserve hike.