MALAYSIA insisted today that it has sufficiently diversified its economy to counter the chilling effects of the recent dive in oil prices, despite clear signals from the industry that it will cut investment and jobs.
Private-sector economists have raised concern about where the government will cover the shortfall for its expenditure, with state oil company Petronas warning last month that its contribution to public coffers could fall from RM68 billion (S$25.8 billion) - which was 31 per cent of Kuala Lumpur's revenue in 2013 - to RM43 billion next year. This would be a drop of over one-tenth of projected government revenue.
But Economic Planning Minister Wahid Omar told a petroleum industry conference that oil and gas contributed just 8 per cent to Malaysia's gross domestic product.
"We will be able to ride the fluctuations in global oil price," he said, adding that the government dependence on petroleum revenue had fallen from 40 per cent in 2009.
However, oil and gas is still the biggest contributor to Malaysia's tax revenue and some firms, such as TH Heavy Engineering (one of about 40 public-listed companies among 4,000 operating in the sector) recently announced downsising.
This followed on Petronas chairman Shamsul Azhar Abbas saying the oil giant would cut capital expenditure by 15 per cent to 20 per cent next year, meaning up to RM12 billion less for vendor order books.
The warning was based on the Fortune 500 company's projection of Brent crude oil settling at US$75 per barrel next year against the expected US$100 average for this year.
But the benchmark Brent has slumped by over 40 per cent since June, and is trading around US$65 this week.
However, Datuk Seri Wahid said today the industry should "focus on the longer term and investments should continue".
Concern over the impact for South-east Asia's third-biggest economy has weakened the ringgit, leading to fears of even higher inflation (already expected to triple from last year to next) as it imports products from wheat to heavy machinery, with business done in US dollars.
The greenback has advanced by nearly 7 per cent against the ringgit and sells for a five-year high of about RM3.50.
Malaysia is struggling to end 18 years of deficit budgets and projects overspending to fall to 3.5 percent of GDP this year but doubts are growing over a 3.0 target for 2015.