KUALA LUMPUR: A US$10 per barrel fall in global oil prices could result in the Malaysian government losing millions in revenue, depending on production and export volumes.
Analysts said this is because petroleum-related revenue contributes about 20 per cent of government income.
Malaysian Institute of Economic Research (MIER) executive director Prof Dr Anthony Dass said if oil price projections fall below expectations, the government may need to reassess overall revenue estimates, cut or defer some mega projects, and increase borrowing to cover the deficit.
To mitigate the negative impact of falling oil prices on the national budget, Dass suggested several strategies focusing on diversifying revenue sources, efficient expenditure management, and strengthening the broader economy.
"The government must reduce reliance on petroleum revenue by broadening the national revenue base, which could include reintroducing the goods and services tax (GST) at a low, phased rate with better exemptions for essential goods.
"If not, the government could enhance the sales and services tax (SST) by expanding its scope to untaxed sectors to increase revenue.
"To further boost revenue, the government could consider implementing a carbon tax or a luxury tax to generate new income while driving behavioral changes towards a green economy," he told Berita Harian.
Dass emphasised that the government should also reevaluate spending to ensure funds are allocated efficiently.
This could include deferring non-urgent mega projects and focusing on initiatives with direct benefits to the public, such as public transportation and basic infrastructure.
"Improving transparency and efficiency in spending is also crucial to avoid waste. Implementing targeted subsidies, especially for fuel and essential goods, could help reduce fiscal burdens," he added.
Dass explained that the government needs a more strategic approach to managing petroleum revenue, even during periods of low prices.
Hedging strategies could be employed to stabilise income amid oil price volatility.
"Increasing investments in exploration and production could offset the impact of lower prices by boosting output.
Additionally, the government should improve the management of petroleum revenue funds, such as the National Trust Fund (KWAN), to safeguard long-term fiscal stability," he said.
BIMB Securities deputy chief economist Muhammad Zafri Zulkeffeli pointed out that based on 2025 Budget, the government has projected oil prices at US$75-US$80 per barrel next year, with expected petroleum tax revenue of RM20.7 billion.
If oil prices fall below this range, Muhammad Zafri said it will negatively impact the government's revenue projections, particularly petroleum-related income, including special dividends from Petronas.
"However, lower global oil prices could reduce pressure on the government's fuel subsidy costs.
"Additionally, measures to strengthen domestic demand, such as higher civil servant salaries, labor market stability, and public investments, will indirectly contribute to bolstering non-petroleum tax revenues," he said.
Brent crude oil prices recently hovered around US$70 per barrel as tensions in the Middle East began to ease.