Amid oil price scare, minister says Malaysia not too dependent on crude revenue

Lim pointed to the country’s mature domestic financial market and political stability as the buffer. ― Picture by Yusof Mat Isa
Lim pointed to the country’s mature domestic financial market and political stability as the buffer. ― Picture by Yusof Mat Isa

KUALA LUMPUR, Nov 16 — Minister of Finance Lim Guan Eng insisted today that Putrajaya’s finances will not be affected if oil prices drop.

This comes amid concerns over the commodity’s near-term prospects as uncertainties dog the global economic outlook for next year.

Oil accounts for up to 14 per cent of next year’s Budget revenue projection but Malaysia had recently weathered a severe six-month gas supply disruption that took a big toll on revenue, which Lim said reflected the economy’s resilience against any external shock.

The Bagan MP pointed to the country’s mature domestic financial market and political stability as the buffer.

The Industrial Production Index saw the overall index on average grow just 2.2 per cent year-on-year (YoY) in the May-September period, while the mining sub-index contracted by 5.3 per cent YoY on average.

The same supply shock is expected to continue until the middle of next year.

“Given the limited benefits and the less than expected revenue received by the Federal Government from rising energy prices so far, the continued economic resilience

proves that Malaysia is not as dependent on energy prices as in the past,” Lim said in a statement.

Gas exports took a major hit from the second quarter of this year following a critical production breakdown in Kebabangan gas field in Sabah, directly affecting GDP growth and petroleum income from tax revenue, Lim said.

Natural gas production, on the other hand, contracted by 10 per cent in the second quarter followed by a 3 per cent contraction in the third, based on official estimates Lim provided. Crude oil and condensates production contracted by 2 per cent in the same period.

As a result, second- and third-quarter revenue from petroleum-related taxes contracted by 11 and a whopping 27 per cent respectively.

Lim said major repairs and assessment works are still ongoing and production is only expected to return to full capacity by the middle of next year at the latest.

Drastic fluctuations in oil prices in recent weeks have prompted analysts to speculate a possible Budget revision although Putrajaya has maintained an optimistic outlook, assuring concerned investors of the country’s “strong fundamentals”.

“Malaysia has a well-diversified economy with 23 per cent of its GDP contributed by the manufacturing sector and 55 per cent by the service sector,” Lim said today, reiterating past statements.

“Mining-related activities form only 9 per cent of the GDP.”

The minister then said Malaysia should not be compared to Saudi Arabia, where mining makes up 25 per cent of the economy.

“It is inappropriate to compare the two countries side-by-side given the stark difference between the two economies,” he said.

Brent crude oil futures were at US$67.49 (RM282.86) per barrel at 0747 GMT, up 87 cents, or 1.3 per cent from their last close, according to Reuters data.

US West Texas Intermediate (WTI) crude oil futures were at US$56.96 per barrel, up 50 cents, or 0.9 per cent.

But prices were mainly supported by expectations the Organisation of the Petroleum Exporting Countries (Opec) would start withholding supply soon, fearing a renewed rout such as in 2014 when prices crashed under the weight of oversupply.