‘Malaysia benefits from higher oil prices, commodity exports and fiscal revenue’

KUALA LUMPUR: Malaysia has benefited from higher oil prices through higher commodity exports, higher fiscal revenue and higher commodity-related investments, according to a report by Standard Chartered Research.

The country’s current account and growth are positively correlated with oil prices, said the firm in a report titled “Quantifying the Impact of an Oil Shock”.

Higher oil prices are positive for government revenue.

Government estimates suggest that every US$1 (RM3.99) per barrel increase in oil prices add about RM300 million to revenue.

That said, oil revenue is only budgeted at 14.8 per cent of revenue for this year compared with the peak in 2009 when it constituted some 43 per cent of total fiscal revenue, and there may be some upside as the government assumes an oil price of US$52 per barrel for this year.

“Hence, we estimate that for every 10 per cent rise in global oil prices, Malaysia’s current account increases by about 0.3 percentage point of gross domestic product after four quarters.”

Malaysia is a large exporter of liquefied natural gas (LNG) and palm oil. Given the positive correlation between oil and other energy commodity prices, higher oil prices typically supported LNG and palm oil prices, the report noted.

The research firm said last year, Malaysia’s LNG and palm oil exports amounted to RM80 billion. The removal of a blanket oil price subsidy in late 2014 added to the positive fiscal impact of oil prices.

At their peak in 2012, government subsidies were equivalent to about RM25 billion, reducing the positive fiscal effect of high oil prices previously, it said.

The managed float system means that global oil price variations pass through more quickly than before.

On the global front, oil prices have continued their strong run that began towards the end of last year as the market’s mindset and core assumptions have changed significantly over the year.