PETALING JAYA: Malaysia, as an oil exporting nation. stands to benefit as oil prices rise up to a certain point where super high oil prices would be more of a drag on the overall economy, said economists.
With oil prices averaging US$90 to US$100 per barrel, oil subsidies by the Government could increase to some RM14bil from RM10.3bil last year. As of Wednesday, Nymex crude oil was trading around the US$104 band.
This subsidy amount of RM14bil is still lower than subsidies in 2008, which amounted to some RM17.6bil.
MIDF Research economist Anthony Dass said that the first round effect from higher oil price will be positive, raising real GDP by 0.4% or for every US$10 per barrel
“But the second round impact on the economy will be negative, slashing growth by 0.8% dragged by weaker external demand with much depending on domestic demand. Hence, the net effect on growth will be a contraction of 0.4%,” said Dass.
Currently, some 11% of Malaysia’s total exports comes from crude oil and petroleum products.
“On the fiscal budget, it is estimated that every US$1 per barrel rise in oil price will boost federal revenue by RM300mil to RM400mil over two years. Fuel subsidies too will rise amid a gradual approach towards subsidy reduction,” said CIMB Research head of Economics Lee Heng Guie.
He added that higher crude oil prices could raise the Government’s subsidy payments for fuel, thereby offsetting some of the increases in revenue.
Dass’ analysis points to the fact that for every US$10 per barrel increase in crude oil price, it will raise government revenue by RM4.5bil and subsidies by about RM1.3bil.
The Government has moved to reduce the petrol subsidy in stages as part of its efforts to consolidate the fiscal deficit over the medium term.
Lee said that oil-related revenues were estimated at RM59.4bil or 35.8% of total revenue in 2011, based on an average oil price of US$85 per barrel.
On a more reassuring note, Dass said that rising oil prices would be more of a headwind than a derailment to growth.
“While higher oil price will steal some share of developing Asia’s wallet, it remains inadequate to offset the internal growth driven by strong consumer demand and a booming expansion, particularly with strong growth in China and India,” said Dass
OCBC Research pointed out that it was encouraging that Malaysia had a better standing in terms of net exports of crude oil, and thus, this would mean higher oil revenues for the Government.
“Yet, this is likely to come in lagged as usually the case and thus, while on the accounting side, it will be included in the 2011 numbers, the impact on additional spending from this to the economy is unlikely to be marginal for the year,” said OCBC Research.
According to OCBC’s estimates, Malaysia’s fiscal deficit will surge to about 5.7%-6.3% of GDP in the case of sustained oil price increase, which amounts to a 30 to 90 percentage point increase from the current target of 5.4%.-TheStarOnLine
