• Risks on oil reliance

In its economic outlook, RHB Research Institute Sdn Bhd (RHB Research) highlighted the risk of Malaysia’s increasing reliance on oil-related revenue, which will account for 30.9 per cent of revenue in 2019, up from 21.7 per cent in 2018.

“This will pose a risk to the country’s public finances if oil prices drop significantly,” the research house said.

“Indeed, since the Budget 2019 announcement, oil prices (Brent crude) have fallen significantly to below US$60 per bbl in late November 2018, which poses a risk to the budget oil price assumption of US$72 per bbl.

“While the Government has not indicated its plans to recalibrate the 2019 budget any time soon, we think it may need to revisit the budget - if crude oil prices decline further for a protracted period, perhaps to below US$50 per bbl.”

RHB Research also highlighted that a sensitivity analysis of government revenue to oil prices showed that every US$1 per bbl drop in the Brent crude price resulted in a decline of about RM0.3 billion in government revenue.

It noted that this excluded the US$30 billion special dividend by Petroliam Nasional Bhd (Petronas), as this one-off amount is obtained from the national oil company’s reserves and is unaffected by changes in international oil prices.

“From the sensitivity analysis above, a US$20 per bbl drop in the oil price is estimated to add 0.4 percentage point (ppt) to the 2019 budget deficit of 3.4 per cent of growth domestic product (GDP), resulting in a new deficit of 3.8 per cent of GDP.

“In such a situation, there is probably a need to revisit the budget again, if it happens.”