The increased price of crude oil is likely to bode well for the Malaysian economy as it is likely to impact the ringgit and the government coffers positively, analysts and economists chimed in to say.
Senior Economist at UOB Malaysia, Julia Goh, says that with restrained production hikes and projected on-going steady recovery in global energy demand, she maintains Brent crude oil forecast hovering above US$80 into 2022
She said that the Federal government revenues are also forecasted to rise by 3.9% to RM 230 billion (or 14% of GDP; 2021F: MYR221.3billion or 14.6% of GDP) in tandem with higher economic growth. Global oil prices are expected to average higher at USD80 per barrel.
Petronas will likely pay the government a dividend of MYR26 billion in 2022 (2021F: MYR25 billion with an oil price forecast of USD73/bbl) and higher petroleum income tax, Julia said in the report.
The report continues to say that an expected economic expansion also implies higher income tax collection from individuals and corporations. To rebuild revenue buffers, the focus will be on fixing revenue leakages, strengthening tax compliance, and reviewing tax incentives.
It said that the government is exploring potential new taxes such as consumption tax, capital gains tax, windfall tax, and carbon tax. In the PBS, the government also recommends studying a proposed implementation of a Special Voluntary Disclosure Program on indirect taxes that have not been paid, underestimated, or erroneously reported to the Royal Malaysian Customs Department.
Professor of Economics at Sunway University Business School, Dr Yeah Kim Leng believes that the increase in the price of oil could not come at a better time than now as the country was reeling with the pandemic and grappling with financial resources that are already stretched.
Yeah said that the Brent crude oil price is expected to hover between US75 per barrel to US$85 per barrel next year and is likely to taper off next year with increased production of oil by OPEC.
Yeah said that federal government revenues are likely to be bolstered as the federal budget was based on the assumption of crude oil price of US$60 per barrel but this has since risen to US80. “US1 increase in the price of crude oil is likely to translate itself into RM300 million gains in revues and this would have increased substantially to our coffers,” he said
However, Yeah said that this would raise the issue of subsidies for fuel for the people and the government would have to decide on subsidies for all or targeted subsidies.
The increase in the price of oil has also raised interest in oil and gas stocks evidenced by the increase in the Bursa Malaysia Energy index. Yesterday the index was hovering around 828 points from around 700 points on September 21.
The benchmark KLCI had experienced a surge in the stock market as foreign funds continued to buy local stocks.
