When PM Najib unveiled the national Budget on 10 October 2014, the world oil price was about USD90 per barrel and when CM Musa announced the Sabah Budget on 07 November 2014, it was about USD80. However, the budget projections were based on assumption of oil prices at USD100 per barrel. They now seem half a world away from the current USD48 per barrel, up from a low of USD45.
In late November 2014 when the world oil price was at USD71, the CEO of Petronas disclosed that it will be very bad for Petronas if the price dropped below USD65 and that for every USD1 change in oil prices, Petronas’ pre-tax profit would be reduced by RM1 billion.
For certain, the current oil price will create a 50% - 60% drop in projected revenues if the prices maintain for the rest of the year. That is bad news for both the Sabah and Malaysia governments.
Petronas contributed about RM61 billion annually in taxes and special dividends to the federal government. Petronas' pre-tax profit already fell 12% to RM22.8 billion in the third quarter ended September 30, 2014, against RM25.9 billion previously.
The current oil prices could see Petronas’ contribution in 2015 to the federal coffers drop by as much as RM35 billion, or a 15.7% drop from the RM223.4 billion national projected revenue.
The federal government would not only need to address the drop in revenues but also look into sharp depreciation in the ringgit from RM3.20 to RM3.60 per USD1.00 as well as the illicit outflows caused by corruption and other reasons. It was reported that USD49 billion (RM161.7 billion) were illicitly drained from the Malaysian economy in 2012 as reported by the Washington-based group, Global Financial Integrity, ranking Malaysia with the 5th biggest outflow.
At the Sabah level, it was projected that RM1,146,889,000 would be the 5% oil revenues payable by Petronas for 2015. A 50% drop in oil price will see a straightforward shortfall of RM573.4 million in State revenues, a 14.8% drop from its RM3,862,021,620 projected revenue, assuming there is no reduction in oil production volumes.
Regardless of the revisions by the federal government, the Sabah government needs to work out and implement an alternative Plan B for its Budget 2015.
In view of the changing and bleak global outlook, the World Bank has projected a 0.4% reduction in the global growth forecast for 2015.
The Sabah government should also take the opportunity to re-look and re-assess its 2015 Budget and focus on Sabahans consistent with the theme of the 2015 Budget “Focusing On Sustainable Development For The People’s Well-being.”
Sabahans starting 1st April 2015 will have to pay GST which the federal government will collect without paying back Sabah’s 40% entitlement. This reimbursement could have been used for the benefit and welfare of Sabahans. Sabahans already have to pay higher price for goods due to the unfair cabotage policy and prices will be higher in 2015 with the 15% depreciation of the ringgit making imported items more expensive.
The only consolation is petrol and diesel prices would be cheaper but the cheaper fuel has not translated into lower prices. In fact, despite the cheaper fuel price, school bus fares are going to be higher if increases in the Peninsula are any indication.
Perhaps, as part of the 2015 Budget revision, the Sabah government should make a request for the federal government to defer GST for Sabah at least for 2015 and give some breathing space for Sabahans with the turmoil expected in the economy and lower incomes for the rural folks with low prices for rubber and palm oil expected to continue for the rest of the year.
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