Forex Special : The Big Question Mark On Malaysia

All of a sudden, we find every single commentary red flagging Malaysia as the biggest loser in Southeast Asia in the current oil rout when just a week ago, Malaysia was applauded as a champion for their oil subsidy cut and market reform.

Most of the reports make cursory reference to the fact that Malaysia is a net exporter and thus, lower prices would affect growth. Yet the situation may much worse than we expect according to BofA, which gave the best analysis of the situation.

Malaysia relies on 3 streams of revenue from the oil market which make up about 30% of total government revenue.

1. Direct income from petroleum MYR 29.8 bio
2. Petronas dividends MYR 27 bio
3. Petroleum royalty MYR 6.2 bio

In 2013, that amount was a total of MYR 63 bio when Brent oil prices averaged US 100 a barrel.

Using the current price of US 72, we are looking at a 30% drop in revenues for next year, assuming status quo in revenues and prices. That would amount to MYR 18 bio.

Petronas CEO also came out to warn that their 2015 contributions to the government would fall by about MYR 25 bio.

Scrapping fuel subsidies would save the government MYR 20 bio which means the savings would effectively be wiping out the budget deficit savings the market was expecting from the subsidy cuts.

And there is more to it.

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