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NEW UPDATES Asean Affairs    27 January 2015  

World Bank: Malaysia's diversified economy can cushion impact from lower oil prices

Malaysia's diversified economy provides a significant cushion so that the magnitude of the impact from lower oil prices is relatively limited, said the World Bank.
Senior country economist for Malaysia, Dr Frederico Gil Sander, said the impact of weakening oil prices would also be offset by the implementation of the Goods and Services Tax and raising revenue from other taxes that were not related to oil and gas (O&G).
"Of course, the oil price slump still creates challenges, but these are much more manageable compared to countries where oil revenues reach 95 per cent of government receipts," he told Bernama.
The World Bank expects oil prices to average US$75 (US$1=RM3.60) per barrel this year, a decline of 25 per cent from between US$97 and US$100 per barrel last year.
Over the years, the government's dependency on O&G revenue had been declining and the aspiration was to reduce it to below 30 per cent.
In 2011, Malaysia's revenue from petroleum was at 35.8 per cent of total revenue, which was brought down to 33.7 per cent in 2012 and to 31.2 per cent in 2013.
As a result of the weaker crude oil price, the government decided to let market forces determine consumer fuel price via a managed float system, which would be announced on a monthly basis.
For January, RON95 and RON97 was down 35 sen each to RM1.91 and RM2.11 per litre, respectively, and diesel was 30 sen lower at RM1.93 per litre.
Gil Sander said the managed float system, which subsequently eliminated fuel subsidy, was a win for the government's budget as it would help save RM10.7 billion.
"The new system is also a win for the environment because subsidies stimulate over-consumption of energy, which will lead to higher carbon emissions.
"Since the managed float system only smoothes out short-term volatility in prices and does not involve subsidies, it is a move that is welcomed," he said.
While consumers enjoy cheaper fuel price arising from the managed float system, the weaker global oil price had inevitably taken its toll on the ringgit.
However, Gil Sander said, there was still light at the end of the tunnel as the decline in ringgit would boost exports and reduce incentives to imports because imported goods became more expensive in ringgit terms, both of which would help the country's current account.
On whether the fall in global oil prices had ripped Malaysia off of its attractiveness to foreign direct investment (FDI), he said: "FDI is attracted to credible macroeconomic policies, which Malaysia has, as well as, the business environment, another area that Malaysia does well."
He said with respect to fiscal policy, providing a medium-term perspective on the budget would enhance policy credibility, such as preparing budgets for years in advance for ministries.

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This year in Thailand-what next?

AseanAffairs   04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More






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