Budget 2015 was announced in October 2014 to much fanfare. Called the People's Budget; the Prime Minister announced many allocations to be made to further the interests of certain sectors of the community they felt in most need of aid. However, 2015 brought many economic challenges such as the weakening ringgit, the global oil price slump and the outpouring of aid required to deal with the aftermath of the massive floods in December 2014.
In light of these challenges, the PM announced this morning that some measures would be implemented that will alter the course of what was initially decided in the 2014. In his keynote address; the PM said:
"It should be noted that Budget 2015 was formulated based on strong economic fundamentals in 2014. Therefore, the fiscal deficit was forecast from 3.5% in 2014 to 3% of GDP in 2015. However, the external situation has changed lately and we are impacted directly as Malaysia is among the largest trading nations in the world. Compared to the situation a few months ago, the global economic landscape has since changed significantly. This necessitates us to review and clarify some of our earlier macro and fiscal assumptions."
Highlights from the Revision Speech
The revision speech this morning explained each challenge and effect in detail but we'll simplify these as best we can for you. The following information does not cover the speech as a whole but presents highlights.
On declining crude oil prices
The PM addressed the issue of declining crude oil prices by stating the reasons why oil prices were plummeting (a fall of nearly 50% in the past 6 months) and how the government expects this to impact both government coffers and consumers.
- Reason for decline: Oversupply and reduced demand due to advances in technology allowing the US to produce more shale oil and gas. OPEC countries refusing to lower production further exacerbates the situation.
- Benefits of this: The reduction in fuel prices will see consumers increasing their disposable income by RM7.5 billion collectively according to government research. If even 40% of this surplus is spent in other areas; private consumption could boom RM3 billion.
- Impact on the government: At a revised forecast price of USD55 per barrel; the government stands to lose RM13.8 billion in revenue. The amount saved from the removal of fuel subsidies total RM3.7 billion.
- Measures: The government, in considering these factors, have revised their fiscal deficit target to 3.2% as opposed to the earlier planned 3%.
On the fluctuating Ringgit
The fast weakening Ringgit in recent weeks have caused many of us much worry. The government also mentioned what it plans to do in the face of this currency volatility.
- Reason for decline: The drop in oil prices has caused concern in the global community about Malaysia's economy, causing the depreciation of the Ringgit.
- Measures: The government promised firm monitoring of the surplus, pushing forward with fiscal reforms and consolidation and diversifying economic activity to counter falling oil prices. Greater policy flexibility and more diversified markets amongst others, will see the country through this challenging time. The financial system needs to continue in an orderly manner.
Other strategies to strengthen economic resilience
The government also announced other strategies to strengthen the nation's economy.
- Boost the export of goods and services.
- Improve roads and transport systems to enhance logistics and facilitate trade.
- Intensify the tourism industry.
- Review the levy on foreign workers.
- Visa fee waiver for select tourists.
- Promote domestic tourism, shopping and buying Malaysian made goods.
- Encourage GLCs and GLICs to invest domestically.
- Postpone hikes in electricity and gas tariffs.
- Reschedule purchases of non-critical assets including office equipment, software and vehicles.
- Halting national service (Program Latihan Khidmat Negara) for the time being.
- Assisting businesses and individuals in rebuilding infrastructure after the flood.
- Provide RM893 million for flood mitigation projects.
- Special personal loans with reduced interest rates from Bank Rakyat for flood victims.
At the end of it all, the PM assured the people that we are not in recession such as that of 1997/98 and 2009 and thus no stimulus package is required. The Development Expenditure estimate of RM48.5 billion for 2015 will be maintained and spent.
If you'd like to read more details on the revision; the full transcript of the speech is available on the PM's website.