KUALA LUMPUR: The Malaysian ringgit fell to a six-year low on Tuesday as the government cut its economic growth forecast, reduced its budget and widened its fiscal deficit target for 2015, to reflect lower oil and gas revenues due to plunging world prices.
The Southeast Asian country has been hard hit by the collapse in global crude prices. It is the world's second-largest exporter of liquefied natural gas and is also a net oil exporter.
The government has relied on money from energy sales to spur economic growth and control its mounting debt.
Announcing revisions to a 2015 budget that was presented in October before the oil market's fall steepened into a nosedive, Prime Minister Najib Razak said Malaysia had to adjust to the loss of income, while dismissing fears of an economic meltdown.
"We are not in the crisis as in the years of 1997-1998, and 2009, where we needed to roll out stimulus packages," Najib told a news conference in Putrajaya, referring to Asian Crisis in the late 1990s, and the global financial crisis a decade later.
Najib, who is also the finance minister, said that the government now expects economic growth of between 4.5 to 5.5 percent in 2015, having earlier forecast 5.0 to 6.0 percent.
Rating agencies Fitch Ratings and Standard & Poor's remained downbeat following the budget revision. Fitch already has a negative outlook on Malaysia's A minus rating and S&P said a prolonged slump in oil prices could undermine both Malaysia's fiscal consolidation and its revised economic growth forecast.
The once-stable economy is grappling with mounting household debt and rising costs, while low confidence among investors has resulted in the ringgit sliding to six-year lows.
Foreign investors have trimmed exposure to Malaysia, causing its bonds and stock markets to underperform in the last three months.
Najib said the revised budget would assume a global oil price of around $55 a barrel. The original budget was based on an oil price of $100, whereas the price of Brent crude has fallen by more than half to levels below $50.
The fiscal deficit target was also raised to 3.2 percent of gross domestic product for 2015. The original budget had targeted a reduction in the fiscal deficit to 3.0 percent this year, from 3.5 percent in 2014.
To trim the 2015 budget, Najib said operating expenditure would be cut by 5.5 billion ringgit ($1.53 billion), but development spending would remain unchanged at 48.5 billion ringgit.
Proposals to increase electricity tariffs would be delayed he said, and state-run firms would be encouraged to invest inside the country.
CURRENT ACCOUNT PRESSURE
Najib sought to allay investors concerns over Malaysia's shrinking current account surplus.
"The current account, God willing, will remain positive, and won't be in deficit," Najib said.
The ringgit weakened 0.9 percent to a low of 3.6030 per dollar after the prime minister's comments, dumping the currency to its weakest level since April 2009.
"The MYR will remain trading within the 3.60-3.70 range in coming quarters. The measures at least keep it within this broad range for now," said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur.
Investors fear that any tip into deficit could put more strain on foreign currency reserves that have fallen to uncomfortable levels, given the country's short-debt position.
Speaking later, central bank Governor Zeti Akhtar Aziz said reserves had fallen $18.9 billion in 2014, but said reserves had earlier been built up to provide a cushion against market volatility, that the country was now facing.
"This is what reserves are for. That is why we built up buffers," she said.
Zeti went on to dismiss fears that capital outflows could get out of hand.
Despite some short term investors pulling out, Zeti said longer term investors such as pension funds, sovereign wealth funds and central banks that have diversified into emerging markets, were expected to remain committed to Malaysia.
Inflation forecast was lowered to 2.5 to 3.5 percent for 2015 from 4-5 percent in the October budget.
Zeti said the central bank's policy interest rate of 3.25 percent is still "highly accommodative" for growth.
Comments
Comments are closed.