This article first appeared in The Edge Financial Daily, on March 9, 2016.

KUALA LUMPUR: The government will implement a contingency plan should crude oil prices consistently fall below the US$20 (RM82) per barrel level, said Prime Minister Datuk Seri Najib Razak.

He said crude oil prices are the most sensitive indicator of Malaysia’s budget.

“If oil prices consistently fall below the US$20 per barrel level, we will implement a contingency plan,” Najib told Parliament yesterday. He was replying to a supplementary question from Kuala Kangsar member of parliament Datuk Wan Mohammad Khair-il Anuar Wan Ahmad who had asked about the government’s preparation in facing the challenging economic environment.

However, the finance minister noted that crude oil prices are already strengthening and trading at around US$40 per barrel.

“The value of our ringgit is also strong at the level of four against the US dollar today (yesterday).

“It appears that our [economic] fundamentals are getting better. Hopefully, this environment and situation will continue. The government will continue to monitor the latest development thoroughly,” he said.

Najib unveiled a recalibrated Budget 2016 on Jan 28, in the face of a fall in crude oil prices. The revised budget is now based on Brent crude at US$30 to US$35 per barrel from US$48 per barrel previously.

Najib said the government will not cancel or reduce the projects approved under Budget 2016 and the 11th Malaysia Plan, especially programmes that are people-centric, as well as projects with a high multiplier impact on the economy.

“It is more about adjusting the cash flow by reallocating the funds for a project or a development programme.

“As a caring government, although we are faced with lower income following the fall in global crude oil prices, we will make sure that our expenditures are optimised, and the implementation of programmes and high-impact projects will continue,” he also said.

He added that the finance ministry had come up with guidelines on measures to optimise the government’s expenditure on March 1.

The guidelines are to ensure that all the heads of government agencies manage their resources effectively, and re-prioritise their programmes and projects so that they are more effective and in line with the national agenda.