KUALA LUMPUR, Jan 20 — Malaysia ringgit currency fell to a six-year low today as the government cut its economic growth forecast, reduced its budget and widened its fiscal deficit target for 2015, to reflect lower oil and gas revenues due to plunging world prices.

The Southeast Asian country has been hard hit by the collapse in global crude prices as it is the world’s second largest exporter of liquefied natural gas and is also a net oil exporter.

The government has relied on money from energy sales to spur economic growth and control its mounting debt.

Announcing revisions to a 2015 budget that was presented in October before the oil market’s fall steepened into a nosedive, Prime Minister Najib Razak said Malaysia had to adjust to the loss of income, while dismissing fears of an economic meltdown.

“We are not in the crisis as in the years of 1997-1998, and 2009, where we needed to roll out stimulus packages,” Najib told a news conference in Putrajaya, referring to Asian Crisis in the late 1990s, and the global financial crisis a decade later.

Najib, who is also the finance minister, said that the government now expects economic growth of between 4.5 to 5.5 per cent, having earlier forecast 5.0 to 6.0 per cent.

The once-stable economy is grappling with mounting household debt and rising costs, while low confidence among investors has resulted in the ringgit currency sliding to six year lows.

Foreign investors have trimmed exposure to Malaysia, causing its bonds and stock markets to underperform in the last three months.

Najib said the revised budget would assume a global oil price of around US$55 (RM197) a barrel. The original budget was based on an oil price of US$100, whereas the price of Brent crude has fallen by more than half to levels below US$50.

The fiscal deficit target was also raised to 3.2 per cent of gross domestic product for 2015. The original budget had targeted a reduction in the fiscal deficit to 3.0 per cent this year, from 3.5 per cent in 2014.

“I think the announcement is quite positive,” said Michael Wan, an economist at Credit Suisse in Singapore. “The estimate is quite sensible seeing that the deficit target would have been 3.9 per cent without government interventions.”

To trim the 2015 budget, Najib said operating expenditure would be cut by RM5.5 billion (US$1.53 billion), but development spending would remain unchanged at RM48.5 billion.

Proposals to increase electricity tariffs would be delayed he said, and state-run firms would be encouraged to invest inside the country.

Current account pressure

Najib sought to allay investors concerns over Malaysia’s shrinking current account surplus.

“The current account, God willing, will remain positive, and won’t be in deficit,” Najib said.

The ringgit weakened 0.9 per cent to a low of 3.6030 per dollar after the prime minister’s comments, dumping the currency to its weakest level since April 2009.

“The MYR will remain trading within the 3.60-3.70 range in coming quarters. The measures at least keep it within this broad range for now,” said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur.

Investors fear that any tip into deficit could put more strain on foreign currency reserves that have fallen to uncomfortable levels, given the country’s short-debt position.

Speaking later, central bank Governor Zeti Akhtar Aziz said reserves had fallen US$18.9 billion in 2014, but said reserves had earlier been built up to provide a cushion against market volatility, that the country was now facing.

“This is what reserves are for. That is why we built up buffers,” she said.

Zeti went on to dismiss fears that capital outflows could get out of hand.

Despite some short term investors pulling out, Zeti said longer term investors such as pension funds, sovereign wealth funds and central banks that have diversified into emerging markets, were expected to remain committed to Malaysia.

Inflation forecast was lowered to 2.5 to 3.5 per cent for 2015 from 4-5 per cent in the October budget.

Zeti said the central bank’s policy interest rate of 3.25 per cent is still “highly accommodative” for growth. — Reuters