The Government will have to review Budget 2016 should the price of Brent Crude remain at current levels.
Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar said the Government would continue to monitor oil prices to determine the new norm.
“In the event that oil prices remain at low levels, the Government might have to review the Budget as it will need to focus on the optimisation of the country’s growth,” he said.
But he pointed out that supply-demand as well as geopolitical development will affect oil prices and the Government would not be able to adjust the budget plan based on the fluctuation of oil prices.
“Not all oil fields will be able to produce at such low prices. As high cost producers cease operations, supply will come down again. Hope it will recover some time next year,” he told reporters after delivering a lecture titled Economic Outlook: The Way Forward for Malaysia here yesterday.
Malaysia had unveiled its budget for next year based on the assumption that the price of Brent Crude would be US$48 per barrel. However, the price is now trading below US$38 per barrel and the outlook is for further weakening of price. About 19% of the Federal Government revenue comes from oil- and gas-related activities.
While the Government’s coffer is sensitive towards oil price movement, which will then affect development expenditure, he said the country’s fundamentals remained strong due to the well-diversified resources, income and export markets.
Asked if he’s concerned about an outflow from the country following the rate hike in the United States yesterday, Abdul Wahid said people would continue to invest in Malaysia for the stability, policies and fundamentals.
“The interest rate hike by the Fed has been long-awaited and anticipated and the quantum of 25 basis points is also within most analysts’ expectations,” he said, adding that the tone of the US central bank was more towards normalisation.
Yesterday, the Federal Reserve raised the prime fund rate range from 0% – 0.25% to 0.25% – 0.5%, the first interest rate hike since the financial crisis in 2008. It was a move towards a more normal monetary policy.
Wahid said the country would move forward with more progressive policies.
18 December 2015 (The Star)