High oil prices to boost Malaysian economy and government coffer

Source: Xinhua| 2018-04-26 14:44:01|Editor: Shi Yinglun
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​KUALA LUMPUR, April 26 (Xinhua) -- Oil prices which recently hit 3.5 year high at 74 U.S. dollars per barrel, is expected to boost Malaysia's economy growth and government coffer, said analysts Thursday.

Malaysian government is expected to collect additional oil and gas revenue of 5 billion ringgit due to the oil price rise recently, CIMB Research said.

For each 10 U.S. dollars oil price rise above 52 U.S. dollars per barrel, which is the Malaysian Budget 2018 average oil price assumption, fiscal revenue is expected to add 3 billion ringgit (765.2 million U.S. dollars), according to the report.

It said, Malaysia as a net oil and gas exporter (47.2 billion ringgit or 3.5 percent of GDP in 2017), the terms of trade improvements for Malaysia arising from higher oil prices will likely generate positive spillovers to its economy, current account and government coffers.

The Brent Crude Oil prices have surged 10 percent to 74 U.S. dollars year-to-date as global oil demand increased and the Organization of the Petroleum Exporting Countries have agreed to cut production since last year.

In a separate report Thursday, Nomura Research also highlighted, Malaysia is one of the clear-cut winners of higher oil prices.

"We estimate every 10 U.S. dollars a barrel increase in the price of oil would widen Malaysia's trade surplus by about 0.4 percent of GDP, which would help to keep the current account in a comfortable surplus (3.6 percent of GDP as of Q4 2017)," it said.

However, as Malaysian government has removed fuel subsidies, the country's inflation is therefore more sensitive to oil prices. The research house estimates showed, the inflation would increase by about 0.6 percentage point on 10 U.S. dollars a barrel rise in oil price.

If the current level of oil prices is sustained, fuel prices could rise sharply after the May 9 general election and the full-year inflation could rise above the research house 2.5 percent forecast towards the top end of Malaysian central bank 2 percent to 3 percent forecast range.

However, Malaysian government still collects sizable oil revenues (14.8 percent of 2018 total budgeted revenue), and this would provide more fiscal room after the general election and reduce the need to significantly cut spending in the second half to meet the full-year fiscal deficit target of 2.8 percent of GDP.

Nomura also said, higher oil prices would raise upside risks to Malaysia's GDP growth forecast of 5.5 percent in 2018 from 5.9 percent in 2017.

This, in turn, could provide space for Malaysian central bank, which it expects to stay on-hold in 2018, to further normalize monetary policy, raising the risk of another 25 basis point rate hike later this year.

According to the report, other clear cut winners amid rising oil prices are Saudi Arabia, Nigeria and Colombia.