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The negative effects of plummeting oil commodity prices has had a severe impact on Malaysia's growth prospects and government revenues, the Wall Street Journal reported today. The heavy reliance on the export of oil, palm oil and rubber for the nation's revenue means that the decline in global prices for these commodities will hit Malaysia the hardest. Societe Generale de Surveillance (SGS) report showed that Malaysia’s palm oil exports during November 1 to 15 decreased 2.5 per cent to 605,624 tonnes compared with 621,145 tonnes during October 1 to 15. SGS also reported that exports of Malaysian palm oil products during November 1 to 20 fell 4.6 per cent to 843,707 tonnes compared with 884,628 tonnes during the October 1 to 20 period.
Demand from the EU and India fell, while demand from China increased. Spot ringgit weakened on Friday to 3.3525, due to the yen rebounding after the Japanese Finance Minster warned against the currency weakening position. By the end of the year, Malaysian and Indonesian crude palm oil production will likely slow due to the monsoon season. "Malaysia is on track to achieve the 2014 federal budget deficit target of 3.5 percent, down from 3.9 percent in 2013. With fuel subsidy removal locking in the impact of lower oil prices, the mission projects that the deficit could decline below 3 percent of GDP in 2015," the International Monetary Fund said in a statement.
Calling Malaysia Asia’s largest oil-and-gas exporter, the US business daily said the country benefited when the price of crude oil remained over US$100 a barrel for most of last year. Hence, the sharp decline in the oil price to US$80, and the expected further drop in price, has resulted in foreign investors withdrawing around US$2.5 billion from the country last month, WSJ quoted analysts as saying. Malaysia's current account surplus stands at RM7.6 billion in the third quarter of this year compared with RM16 billion for the same period a year ago. The country's oil-related revenue amounted to RM63 billion last year, which is equivalent to almost 30% of the total government revenue.
According to the WSJ, the country's woes are further compounded due to the decline in the price of rubber and palm oil – two other major exports – to new lows. Malaysia remains the world’s second-largest producer of rubber and palm oils, making the 25% and 16% drop in both commodities, respectively, having a severe impact on revenue. Meanwhile, domestic consumer spending by Malaysians has also slowed under an accumulated household debt that is 86% of the economy. The WSJ reports that the pressure from falling commodity prices on the economy will be an obstacle to the vision of turning Malaysia into a high-income country with developed nation status by 2020.
The government will intervene if global crude oil prices rise too high to cushion the impact on RON95 petrol and diesel, said Deputy Finance Minister, Datuk Chua Tee Yong. "However, the intervention mechanism has not been finalised yet, and the evaluation process being undertaken by the Domestic Trade and Consumer Affairs Ministry, is ongoing," he said after delivering his keynote address at the 19th Malaysian Capital Market Summit in Kuala Lumpur today. Chua said the government's move to allow market forces to determine fuel prices, via a managed float system, was to enable consumers to enjoy the current downtrend in global oil prices. The managed float mechanism, to commence on Dec 1 as announced last Friday, superseded the government's initial plan of an income-tiered fuel subsidy. "With the current low oil prices, not announcing the float, means the government has to impose tax on petrol. This is not what we want to achieve.” Making a comparison, Chua said neighbouring Indonesia had priced the lower grade RON88 petrol at RM2.35 a litre, while the premium RON92 and RON95 at about RM2.70 and RM3.20 respectively, which were substantially higher than in Malaysia because of taxes. He said the lower oil prices would also result in some savings of between RM10 billion and RM20 billion annually in terms of subsidies
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