KUALA LUMPUR: The country’s current account balance could fall into a deficit as early as year end, albeit briefly, as the continuing weak global crude oil price drags the country’s oil revenue down with it, said UBS Investment Bank global economist and managing director Paul Donovan.

“The country’s current account has been in surplus for some time. Commodity exports have been a big benefit for Malaysia, [but] as we look ahead, I see potential risks that the current account balance would move into deficit for a brief period later this year or in early 2016,” Donovan told a media round table on the global economy yesterday.

“But I do not think it will be serious. I think the Malaysian economy is in a better situation, so I don’t think there will be significant disruption. Possibly a little volatility in the currency markets but the central bank seems quite content to manage that so far,” he said.

Donovan does not think the dividend payments from state-run oil company Petroliam Nasional Bhd will be sustainable till 2016. This, coupled with increases in private-sector borrowings, could push the current account balance into deficit by the end of 2015 or early next year.

However, he said there’s no need for alarm as the deficit is likely to be “small”.

“I would not be alarmed by this. While it is a situation that must be monitored, it is a reflection of the global environment, where we find ourselves believing that the oil price will only slowly make its way back to the US$80 (RM284) a barrel level in two to three years,” he said.

“It is more important to reflect on the fact that crude oil price is likely to remain relatively low [going forward]. During that period, as an oil-exporting country, the Malaysian economy has more challenges in its international trade position,” Donovan said.

The country recorded a current account surplus of around 4% of gross domestic product (GDP) last year. Current account to GDP averaged 3.45% from 1980 until 2013, reaching an all-time high of 17.1% in 2008 and a record low of -13.2% in 1982.

Meanwhile, Donovan sees the ringgit appreciating by as much as 5% against the US dollar as the greenback stabilises in the later part of the year. However, he noted that the strengthening of the local currency is “nothing too dramatic” as one must reflect that the appreciation is against the US dollar and not other Asian currencies.

He said the ringgit exchange rate against the US dollar is not the best indicator of the strengths and weaknesses of the local currency.

“For the ringgit, there are two sides to the story. It is not just what Malaysia is doing, but also what the US is doing [to determine the value of the ringgit]. With Malaysia, we think Bank Negara Malaysia (BNM) will be not too keen to have too much of an appreciation [in the value] of the ringgit,” he said.

According to Reuters, the ringgit rose as high as 3.5440 against the US dollar yesterday, its strongest since Feb 9, in its third straight session of gains.

Donovan is of the view that BNM seems “quite content” to have a somewhat more volatile currency rather than more volatile interest rates.

“The movements in the ringgit that we have been seeing, to be honest, we have to be prepared to continue to see fluctuations in the currency as we go through this year,” he said.

Donovan said he does not think the US dollar will weaken substantially, but the perception that it will “only ever go up” is drawing to a close, adding that the upcoming interest rate policy to be introduced by the US Federal Reserve will lead to a period of calm emerging over the US dollar.

This article first appeared in The Edge Financial Daily, on April 29, 2015.