KUALA LUMPUR, Jan 19 (Reuters): Malaysian Prime Minister Najib Razak will announce policy changes, including likely budget revisions, tomorrow (Tuesday) to help its oil exporting economy adjust to the impact of slumping global crude prices.
Southeast Asia's third largest economy relies on oil and gas export revenues to maintain strong growth and control a mountain of debt, and the adverse turn in the crude market has put its current account balance under strain, and ruined budget projections.
A 10 per cent fall in the ringgit currency during the past four months reflects investors' mounting worries, as the government's budget for 2015 was based on overoptimistic forecasts for oil prices and economic expansion.
Quoted by state-run Bernama news agency on Monday, Najib flagged the need for change to meet the more straitened times.
"An accurate and wise approach is necessary to mitigate the effects of the oil price slump on economic growth, national revenue and the value of the ringgit," Najib said.
Bernama reported that he would announce "economic modifications and interventions" on Tuesday. A government official told the news agency that Najib, who also runs the finance ministry, was also likely to announce a revised 2015 budget.
The country's 2015 budget, tabled in October 2014, was presented with the assumption that oil prices would have kept to US$100 a barrel, whereas the price of Brent crude has fallen by more than half.
Aside from the impact a plunging oil market, Malaysia is also feeling the chill from slowing economic growth in China, the second-largest export market.
A budget revision could help assuage investors' concerns, if it commits reducing its fiscal deficit by cutting spending to counter the loss of revenues from the commodities sector.
Malaysia's stock market fell 3.8 per cent over the past year, taking its biggest hit in December when the decline in oil prices became more acute. Its government bond market could see further sell off as foreign investors hold 46 per cent of the country's bonds.
The Malaysian ringgit was emerging Asia's worst performing currency in 2014, and having lost 1.9 per cent since the start of this year it still holds that unwanted ranking.
The decline in oil prices has hit Malaysia's state oil firm Petronas, which accounts for most of the government's oil and gas revenue. The company warned in November that payments to the government in the form of dividends, tax and royalties could be 37 per cent lower next year if oil stays around $75 a barrel.
