Malaysian government looks to revise Budget 2016 on lower oil assumptions

Malaysian government is looking to revise Budget 2016 based on lower oil price assumption. PM Najib will be chairing a fiscal policy committee meeting this month to revise the 2016 Budget. The move is to realign the fiscal position to the existing level of oil prices and to better reflect the challenging conditions in the global environment. 

When Budget 2016 was tabled in October last year it has an initial oil price assumption of USD 48/bbl. With oil prices now closing at about USD 30/bbl level and oil tax revenue still accounting for a considerable share of the direct tax revenue (approx 20%), expenditure will have to be slashed or more revenue has to be extracted to maintain the fiscal target. 

PM Najib announced a MYR 267bn budget for 2016 in October. Despite the upcoming budget revision, the government has reiterated its commitment to reduce the deficit to 3.1% of GDP while government debt is targeted to remain manageable at 55% of GDP. 

"We believe the fiscal target can be achieved but overall GDP growth for 2016 is likely to come in lower at 4.5%, from a projected 4.8% in 2015", notes DBS Group Research.