Fall in world oil price may result in government revenue loss by RM 11 billion

By Poovenraj Kanagaraj

The world oil price is expected to linger around $35 per barrel for the second half of 2020 and will remain there for the whole of 2021 according to The Malaysian Institute of Economic Research (MIER) latest findings in the National Economic Outlook 2020-2021 points out that world.

The research house further states that a figure of oil price falling between $20 to $30 will lead to a drop of GDP growth from the baseline by as much as one percent.

“The fall in world oil price alone may result in government revenue loss by RM 11 billion and consequently private and public consumption fall by as much as RM 55 billion,” MIER stated in the outlook.

Furthermore, the outlook pointed out that the longer the containment policy (lockdown) maintained by Putrajaya, the deeper the recession will be in this year. “We had previously estimated that any extension of MCO by two weeks from April 14 could lead to economic contraction by two percent of GDP growth,” the research house wrote.

However, premature economic opening may lead to a risk of reinfectivity which proves that this will not be an easy trade-off for the government.

MIER is also projecting economic activities in better circumstances including trade and investment to fully rebound by the third quarter of 2020 and will further strengthen through 2021.

However, in the worst-case scenario, the country may not see the production and trade fully recover by the fourth quarter of the year and in the first quarter of 2021.

“For both scenarios, we take into account the Government’s PRIHATIN total stimulus package of RM 260 billion, with the supposition that only 20 percent of the non-fiscal injection will be realised into new capital formation,” MIER stated.

Under the best-case scenario, the research house says the country’s GDP this year is likely to grow by 3.8 percent relative to 2019 or -0.29 percent from the 2020 baseline.

In contrast, MIER states that the GDP is projected to contract by one percent to 2019 and -4.9 percent, relative to 2020 baseline.

The report further points that the PRIHATIN stimulus package is expected to cushion the decline in GDP growth by RM 50 billion or 3.6 percent. As for job losses, the stimulus package and a full recovery is expected to prevent job losses by 1.05 million. In the worst-case scenario, job losses are projected to decline from 2.41 million to 1.46 million.

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