MIDF Amanah Investment Bank (MIDF Research) forecast the Government’s petroleum revenue to be at RM72.1 bil in this year, thanks to soaring global commodity prices.
In a research note today, the investment bank opined that as commodity prices stay elevated, there would be a more meaningful translation into higher mining output and sales.
“Global economies, as well as Malaysia’s economy, are adapting to the new normal, easing input bottlenecks and lesser supply disruptions,” it added.
MIDF Research said the Government had presented the Budget 2022 on the assumption that the average Brent crude oil price would be at US$66 (US$1=RM4.33) per barrel this year.
Based on this projection, it said the Government’s oil-related revenue is set to rise to RM44 bil, constituting close to 20% of total revenue.
It noted that oil-related revenue had not moved in tandem with oil price trends in the past four years due to the cancellation of the Goods and Services Tax, COVID-19 and supply disruptions.
“Even though Brent oil price had almost doubled from the initial projection of US$42 per barrel to US$70 per barrel in 2021, oil-related revenue did not increase much due to the pandemic and supply disruptions,” the research house added.
On fuel subsidy, MIDF Research estimates that the Government needs to absorb approximately 55% margin of the estimated actual RON95 price of RM3.18 per litre, on the assumption that the oil price would be at US$110 per barrel and US dollar/ringgit averaging at RM4.09 in 2022.
Based on these forecast figures, the investment bank expects fuel subsidy costs to be between RM25 bil and RM30 bil this year.
Worse case scenario
Currently, the Government has capped RON95 and diesel retail fuel prices at RM2.05 and RM2.15 per litre, respectively.
“If the Government maintains the current capped fuel prices, where the fuel prices expand by only 1.1%, this will push the inflation rate to 2.5%, in line with the Government’s target,” it said.
However, in a worst-case scenario where the Government decides to adopt the floating price mechanism, the headline Consumer Price Index (CPI) inflation would spike to 6.8%, it said, noting that free-floating retail fuel prices will have serious negative implications on Malaysia’s overall inflationary pressure.
“We estimate that status quo RON95 will send headline inflation to 2.9% when food inflation rises by 5%, and a 10 sen cut in RON95 would only bring down the inflation to 2.6% with the food CPI at 5%.
“If the global food supply remains limited, price growth for edibles and portable items would jump by 10%, which may lead the overall inflationary pressure to reach 8.9%.
“Nonetheless, a rise in food prices is inevitable due to the effects of the Russia-Ukraine war which pushed up global commodity prices and increased Malaysia’s food imports bills,” said MIDF Research. – April 25, 2022
