Malaysia Trims Economic Sails In Wake Of Oil Price Rout
January 20, 2015 – Malaysia earlier today trimmed its 2015 growth forecast and said its fiscal deficit would be wider than expected after the sharp fall in global oil prices threw a wrench in the petroleum-exporting nation’s economic plans.
Prime Minister Najib Razak called the situation a “reality check” but assured Malaysians the country was not in trouble, unveiling measures he said would keep Southeast Asia’s third-largest economy moving forward. “We are not in crisis. Indeed, we are taking pre-emptive measures following the changes in the external global economic landscape which are beyond our control,” Najib said in a nationally televised address.
Najib said the government had lowered its growth estimate to a 4.5 to 5.5 percent range, from an earlier projection of up to 6 percent. The target for reducing the fiscal deficit was also tempered to 3.2 per cent of GDP, from an earlier 3.0 per cent target stated in a 2015 budget tabled three months ago.
World oil prices have plummeted by more than 50 per cent in recent months, dragging the ringgit currency to around six-year lows. The stock market has stumbled and business confidence has slid, according to surveys. Malaysia derives 30 per cent of state income from energy exports and pressure had been growing for government steps to assuage rising concerns over the economy.
Many consumers complain of increasing difficulty making ends meet, particularly after a range of subsidies were lifted on key goods, and with the introduction of a consumption tax looming on April 1.
Najib announced steps to promote trade, tourism, investment, and domestic consumption while also reducing business costs, and said hundreds of millions of dollars would be allocated for recovery efforts in parts of northern Malaysia that were hit by devastating floods beginning late last month.
In light of the global economic headwinds, the World Bank recently shaved its GDP growth forecast for Malaysia to 4.7 per cent from an earlier 4.9 per cent, still enviable, but off the historic pace for the Southeast Asian “tiger” economy.
Najib said government spending also would be trimmed, but not the 48.5 billion ringgit (US$13.4 billion) budgeted for development expenditures including a slew of large infrastructure projects considered key to keeping the economy humming. He said the situation will stabilise as the depressed ringgit makes Malaysian exports more competitive overseas, and as growth in key export markets such as the United States improves.
State energy firm Petronas provides about 30 per cent of Malaysian government revenue, pumping in 68 billion ringgit in 2014. But it warned late last year it could slash its contribution by as much as 37 per cent in 2015 due to the oil rout.