Govt trims Budget 2015 operating expenditure due to falling oil prices

PUTRAJAYA: The government is cutting operating expenditure by RM5.5 billion to RM217.94 billion and implementing several measures to boost exports of goods and services, enhance private consumption and accelerate private investments, in a bid to battle potential shortfalls in government revenue brought on by the falling price of crude oil.
In a special address today, Prime Minister Datuk Seri Najib Abdul Razak announced that the revised budget is based on the assumption that crude oil will average at US$55 a barrel for the year, which is half of that assumed during the tabling of Budget 2015 last year.
The revised budget was followed by a cut in the country's economic growth (gross domestic product) target to between 4.5% and 5.5% and a fiscal deficit target of 3.2% this year.
Budget 2015 had set GDP growth rate at between 5% and 6% and fiscal deficit at 3%.
The measures announced, however, did not see a cut in the RM48.5 billion development expenditure for projects such as Mass Rapid Transit (MRT) Line 2, LRT 3, high-speed rail, Pan-Borneo Highway and Refinery and Petrochemical Integrated Development (Rapid), with Najib assuring that it will proceed as scheduled.
Najib warned that the budget deficit of GDP could hit 3.9% should no fiscal measures be taken in the wake of declining oil price.
This was because the government will face a revenue shortfall of RM8.3 billion to accommodate the 2015 Budget measures despite the savings of RM10.7 billion from the implementation of the managed float mechanism for retail fuel prices.
On top of expenditure cuts, Najib today also announced efforts to boost government revenue with another RM1 billion by encouraging more companies to register for goods and services tax (GST) thereby increasing collection, and an additional RM400 million dividends from government-linked companies (GLCs) and government-linked investment companies (GLICs).
Expenditure rationalisation measures, on the other hand, will see savings of RM1.6 billion from the optimisation outlays on supplies and services as well as RM400 million from the deferment of the National Service Programme.
Besides that, the government will also reschedule the purchase of non-critical assets and review transfers and grants to statutory bodies, GLCs and government trust funds, which is expected to save RM300 million and RM3.2 billion respectively.
Najib also clarified the perception that Malaysia is a net exporter of oil, explaining that its imports of petroleum products amounted to RM8.9 billion from January to December 2014, which is higher than the RM7.7 billion it made from the crude oil exports, which makes it a net importer.
"If we include both crude oil and petroleum products, we're actually a net importer with a deficit of RM1.2 billion," he stressed.
In a bid to accelerate private investment, Najib urged GLCs and GLICs to invest domestically and announced that there would be no hike in electricity tariff and gas hike in 2015 in an effort to reduce the cost of doing business.
On the currency front, Najib believes the ringgit will over time adjust to reflect the strong economic fundamentals.
The ringgit hit a low of 3.6153 against the dollar today. It was at 3.6075 as at 5pm.
The government also announced further allocations for its flood assistance programme, with another RM800 million for repair and reconstruction of basic infrastructure and RM893 million for flood mitigation projects.