KUALA LUMPUR (Dec 31): The price of crude oil remains at a depressed level and that will have repercussions on government finance, according to MIDF Amanah Investment Bank Bhd Research.

In a note today, the research house said that at this juncture, it does not know the price threshold that will trigger a revision in Budget 2016.

However, it said the Deputy Finance Minister’s comment was important as it indicated that the Government will explore the option of adjusting its expenditure first before revising the Budget should oil price falls below US$30 per barrel.

“From our estimates, an oil price of US$30 per barrel would lead to a shortfall in Government revenue by approximately RM5.9 billion vs that projected in the Budget.

“Experience from this year has shown that the Government has been able to cut its operating expenditure by RM4.6 billion from its revised 2015 Budget, or even as much as RM10.1 billion from its initial 2015 Budget,” it said.  

MIDF Research said that as such, even with a scenario that the oil price averaging US$30 per barrel next year, the government should have the capacity to absorb the low oil price impact without a revised budget.

“Nevertheless, currently we are not expecting the oil price to average around US$30 in 2016, as it would not be a sustainable level in the long term and should lead to a faster decline in production, reducing the supply glut and culminating in the rebound of oil price.

“Nevertheless, even without a revised budget, as long as there are indications that the Government might be cutting its expenditure further, we may have to revise our GDP forecast for year 2016.

“For now, we maintain our expectation that Malaysia economy will experience a rebound in the second half 2016 due to the recovery of global trade activity next year and maintain our forecast of 5% GDP growth for year 2016,” it said.