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Thursday, January 1, 2015

As economy sours, Putrajaya to focus on domestic investments, stop foreign buys

The Petronas Twin Towers seen in the background amid a downpour in Kuala Lumpur. The national oil firm has warned the government to tighten its budget as global oil price continues to fall, and a recent circular to government agencies has urged them to stop foreign purchases and prioritise domestic economy. – The Malaysian Insider file pic, January 1, 2015.The Petronas Twin Towers seen in the background amid a downpour in Kuala Lumpur. The national oil firm has warned the government to tighten its budget as global oil price continues to fall, and a recent circular to government agencies has urged them to stop foreign purchases and prioritise domestic economy. – The Malaysian Insider file pic, January 1, 2015.
Domestic investments and spending will be Putrajaya's focus in 2015 with all government-linked companies and statutory bodies ordered to hold off foreign purchases amid a gloomy economic outlook.
A government circular seen by The Malaysian Insider revealed that the Treasury ordered the move as it and relevant agencies were coming up with a policy response for Putrajaya to falling global oil prices and a weakening ringgit.
"After taking into consideration the uncertain world economic outlook in 2015, the Government on December 17 is of the opinion that domestic consumption must be increased to generate and support the country's economy," according to the Treasury circular.
The Treasury order came amid criticism that Putrajaya had yet to revise its Budget 2015 to account for low oil prices and a weak ringgit.
The Budget tabled last October was prepared on the assumption that oil prices would hover around US$100-US$105 a barrel.
Global oil prices have fallen off highs of US$110 a barrel in the middle of 2014 to below US$60 a barrel, putting pressure on revenues of several oil producers including Malaysia.
The Malaysian currency has also fallen from RM3.28 to the US dollar at the start of October, to fluctuate between RM3.49 and RM3.50 to the US dollar last month.
The World Bank had cut its 2015 growth forecast for Malaysia’s economy to 4.7% from an earlier estimate of 4.9% on expectations of slower export growth and investments in the oil and gas industry, as well as moderate private consumption next year, media reports said.
It however maintained its expectations of a 5.7% gross domestic product (GDP) growth for Malaysia for 2014.
Malaysian statutory bodies and agencies such as the Employees Provident Fund (EPF) and Tabung Haji (haj fund) have made huge property investments over the past few years, particularly in Europe.
Malaysian government-linked companies or those owned by government-linked funds have also increased their exposure abroad despite a property boom in Malaysia, particularly in Kuala Lumpur, Johor's Iskandar region and Penang.
It is also undestood that national oil company Petronas, which has committed to spend RM50 billion in the Refinery and Petrochemical Integrated Development (Rapid) project in Johor, has asked its various units to revise their budget for 2015.
Petronas, which contributes to almost 40% of the national coffer, had urged the government to "tighten its belt" as the national oil firm was facing the possibility of lower earnings from falling crude oil prices.
Petronas group chief executive officer Tan Sri Shamsul Azhar Abbas said last November that the price range of Brent crude oil at US$70 (RM237) to US$75 may be a "new era", until the end of 2015, if not for the next two years.
Based on the new oil price assumptions, Shamsul said Petronas was looking to cut as much as 15%-20% of its capital expenditure (capex) budget for next year.
Shamsul also called on the government to be prudent in its spending as the state oil firm has to safeguard its growth plans.
Putrajaya has committed to continue providing direct cash aid or Bantuan Rakyat 1Malaysia (BR1M) in 2015 at a higher amount than the previous two times.
But it hopes to get RM23.2 billion from the introduction of the Goods and Service Tax (GST) from April 1 and savings from stopping fuel subsidies last November, which was said to cost RM24 billion last year.
Among the government's previous measures to cut costs and promote domestic consumption include holding more meetings locally and cutting travel budgets.

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