- Budget 2015 is to be re-examined, with spending cuts likely to be made in the face of plummeting global oil prices
PETALING JAYA: Budget 2015 is to be re-examined, with spending cuts likely to be made in the face of plummeting global oil prices.
Prime Minister Datuk Seri Najib Razak said there was a possibility that the budget tabled last Oct 10 would be restructured.
He told reporters that a statement on this restructuring would be issued next week.
Critics noted that the country’s Budget 2015 totalling RM273.9bil has become increasingly untenable as global oil prices drop below US$50 a barrel.
Budget 2015’s projected revenue was based on global oil prices of US$100 to US$105 and increased tax revenues. Since late June, prices of both US West Texas Intermediate (WTI) and the global Brent crude benchmarks have more than halved on a combination of a supply glut and softening demand stemming from the uncertain global recovery.
Fitch Ratings said in a report on Monday that sustained weak crude oil prices in the international market could threaten to delay, or even derail, the Government’s fiscal consolidation efforts.
The rating agency kept its “negative” outlook on Malaysia’s sovereign ratings with anA-credit rating amid concerns about recent narrowing trends in the country’s current account surplus and persistently high fiscal deficit. Malaysia has targeted to trim the fiscal deficit to 3% of gross domestic product (GDP) this year from 3.5% in 2014.
Independent economist Lee Heng Guie toldStarBizthat guidance on a review of Budget 2015 “is crucial as it will help to ease market concerns”, given the impact weak oil prices would have on projected Government revenues this fiscal year.
“Guidance with some caveats on spending will help ease market sentiments. As it is, there’s no telling where the bottom for oil is,” he said.
The floods that devastated the east coast states in late December and early this month have also placed further pressure on the Government’s fiscal position with reconstruction efforts estimated in the billions.
Lee said the Government should revisit the list of projects and fine-tune it. “Non-critical projects should give way to funding the reconstruction (of the flood-hit areas),” he said, adding that postponing projects would also help ease pressure on the current account in the short to medium term.
He views positively the move by the Malaysian Anti-Corruption Commission to set up a special task force for monitoring the distribution of funds to the flood-affected areas of the east coast.
“This will ensure that the spending will be accountable and also help instil discipline on allocations,” Lee said.
Meanwhile, AllianceDBS Research chief economist Manokaran Mottain said investors would view the Government’s move to review the budget as “serious” and “responsive” to the changes taking place in the volatile commodity markets. “We can’t deny that 30% of Government revenue comes from the oil and gas sector, so given the current scenario, it is certain that revenue will be lower,” he said.
Manokaran said maintaining current spending would be sending the wrong signals to investors on the Government’s commitment on fiscal discipline.
However, he pointed out that the Government would have trouble cutting down on operating expenditure (opex) totalling RM223.4bil in Budget 2015. “Opex is sticky downwards, it’ll be difficult to trim,” Manokaran said. Indeed, the Government’s allocations for emoluments (or wages for civil servants), as well as supplies and services, have steadily risen over the past five years.
Manokaran said the development expenditure, totalling RM50.5bil, “will have to be trimmed too as projects can be postponed.” In this respect, given that projections for economic growth this year have been premised on continued spending on the Economic Transformation Programme, the Government’s GDP projection of 5% to 6% for this year may also need to be revised. “There should also be more transparency on growth targets,” Manokaran said.