The oil and gas industry remains one of the significant contributors to Malaysia’s economy and revenue in the strive to become a high-income nation by 2020, says Malaysia’s state-owned news agency Bernama.
Despite facing numerous challenges and dwindling contribution to the government’s revenue, it is still an industry to be reckoned with, considering the sheer size of its workforce and multiplier effect to the economy.
In the medium term, the oil and gas industry remains a significant contributor to the economy and revenue as the economy progressively expands into other sectors, namely the services industry.
With crude oil prices averaging US$50 per barrel this year, they bolster government’s income and allocation to boost the economy and support programme towards meeting the goal of becoming a high-income nation under the National Transformation Programme.
Crude oil prices are correlated to global economic growth.
Since reaching its peak of over US$100 per barrel in mid-2014, Brent crude, the global benchmark of oil price, crashed to as low as below US$30 in January last year, causing the government to initiate a budget recalibration to adjust its spending in line with lower contribution from oil-related revenue.
The total allocation in Budget 2018 increased to RM280.25 billion from this year’s RM260.8 billion.
Lower oil price did not just bring bad news as it prompted the government to rationalise petrol subsidy and strengthen its fiscal policy and moved away from traditional income of relying too much on petroleum-related revenues, instead it focused on consumption-based tax through the goods and services tax (GST).
In the recent Economic Report 2017/2018, the Ministry of Finance forecast petroleum-related revenue contribution to the total income to increase slightly to 14.9 % this year from 14.6 % last year despite a huge increase in average oil price forecast of US$50 per barrel in 2017 and between US$30 and US35 in the recalibrated Budget 2016.
This is far lower than the 35.8 % revenue contribution from petroleum-related revenue in 2011 and around 40 % in the previous administration.
The GST collection, on the other hand, is projected to improve to RM43.8 billion in 2018 from RM41.5 billion in 2017.
With two-digit figure in terms of contribution to the economy and revenue, the o&g industry still plays a big role in the country’s economic development, especially to live up to the aspiration of the National Transformation 2050 (TN50).
TN50 envisions Malaysia to become not only a developed nation, but also among the best in the world in economic development, citizen well-being and innovation.
Emphasis is placed on youths to prepare to them for Malaysia’s future economy and vision in 2050, but the expenditure to support the programmes set for TN50 could not rely heavily on o&g revenue.
As stated by Second Finance Minister Datuk Seri Johari Abdul Ghani, for every US$1 per barrel increase in oil price, the government reaps an additional RM300 million in revenue.
However, in the low oil price environment, a big jump in oil price, thus a larger contribution to the revenue seems unlikely.
As the government continues to diversify its revenue and moves away from oil-related revenue dependency, the industry is not expected to return to its previous position as a 40 % contributor to the GDP and revenue.
However, improvement in oil prices will definitely bring additional revenue to the government and as the oil price recovery is projected to happen in 2022, the additional revenue could help spur TN50 which was unveiled two years ago.