‘Re­cal­i­brate 2019 Bud­get only if oil price hits US$30’

The Borneo Post - - BUSINESS -

KUALA LUMPUR: The gov­ern­ment still has room to breathe and will only re­cal­i­brate the 2019 Bud­get if Brent crude oil prices dip be­low US$ 30 per bar­rel, sug­gests Bank Is­lam Malaysia Bhd chief econ­o­mist Dr Mohd Afzanizam Ab­dul Rashid.

“If we look back to 2016, Brent crude was at US$ 28 per bar­rel on Jan 20, 2016 when the 2016 Bud­get was re­cal­i­brated dur­ing the same month.

“Per­haps, Brent crude of be­low US$ 30 per bar­rel could be the yard­stick be­fore any move to al­ter the bud­get al­lo­ca­tion,” he told Ber­nama.

Fi­nance Min­is­ter Lim Guan Eng pre­vi­ously said the gov­ern­ment would only re­cal­i­brate the 2019 Bud­get should the av­er­age crude oil price dip be­low US$ 50 per bar­rel, as the bud­get’s cal­cu­la­tion was made based on a crude oil price of US$ 70 per bar­rel.

He said there was no ne­ces­sity now to re­cal­i­brate the bud­get as the gov­ern­ment was look­ing at av­er­age crude oil prices and not daily prices.

Mohd Afzanizam pointed out that the spe­cial div­i­dend from Petronas, amount­ing to RM30 bil­lion next year, would be borne from the na­tional oil com­pany’s re­serves, which cur­rently stood at RM402 bil­lion as at Sept 30, 2018.

“In some sense, the spe­cial div­i­dend will not be af­fected by the cur­rent oil prices as the source of re­pay­ment will come from past prof­its.

“There­fore, the gov­ern­ment could still pro­ceed with their spend­ing plans un­der the Bud­get

If we look back to 2016, Brent crude was at US$28 per bar­rel on Jan 20, 2016 when the 2016 Bud­get was re­cal­i­brated dur­ing the same month. Dr Mohd Afzanizam Ab­dul Rashid, Bank Is­lam Malaysia Bhd chief econ­o­mist

2019 al­lo­ca­tion,” he ex­plained.

Ear­lier this morn­ing, bench­mark Brent crude eased 0.22 per cent to US$ 53.98 per bar­rel at one time.

He said while there is al­ways a pos­si­bil­ity for the oil price to dip fur­ther, the oil and gas in­dus­try is not ex­pe­ri­enc­ing ex­cess ca­pac­ity and a cor­rec­tion in oil prices is very healthy as it will re­flect the cur­rent state of its busi­ness.

“We can see the num­ber of oil rigs is ris­ing at only a very grad­ual pace and at the same time, the av­er­age day rate for oil rigs is still be­low the 2014 level.

“So the cost of pro­duc­tion is quite low among the play­ers,” he said, adding the fi­nan­cial or cor­po­rate re­struc­tur­ing en­acted over the past few years would mean that the O& G com­pa­nies’ fi­nan­cial po­si­tion is in much bet­ter shape now. To recap, the then- Barisan Na­sional ad­min­is­tra­tion had re­vised the 2016 Bud­get to op­ti­mise the coun­try’s de­vel­op­ment and op­er­a­tional ex­pen­di­tures amidst fall­ing oil prices and slower eco­nomic growth. The Bud­get was cal­cu­lated based on a crude oil price of US$ 48 per bar­rel, but un­for­tu­nately, it has fallen to US$ 30 per bar­rel. — Ber­nama

Dr Mohd Afzanizam Ab­dul Rashid

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