KUALA LUMPUR (Dec 8): Malaysia’s ringgit halted a three-day gain as Brent crude fell the most in two months, damping the outlook for the nation’s finances just as Prime Minister Najib Razak warned of a 30 billion ringgit ($7 billion) revenue shortfall in 2016 due to oil.
The currency dropped 0.9 percent to 4.2548 a dollar as of 8:44 a.m. in Kuala Lumpur, after climbing 0.4 percent in the previous three days, according to data from local banks compiled by Bloomberg. Brent slumped 5.3 percent in New York, the biggest decline since early October. That clouds the outlook for Malaysia, the region’s only major net exporter of oil, which has retreated this year and helped make the ringgit the region’s worst performer.
The comments by Najib, cited in a New Straits Times report, may be a setback for the government as it seeks to trim the budget deficit and eliminate a shortfall that’s plagued the country since 1998. Sentiment was just starting to improve as debt-ridden state investment company 1Malaysia Development Bhd. gears up to sell off some property assets in Kuala Lumpur valued at 11 billion ringgit. That comes hot on the heels of an agreement last month with China’s General Nuclear Power Corp. to offload its power assets for 9.83 billion ringgit.
“The plunge in oil prices overnight in reaction to last week’s OPEC decision not to cut production caused a selloff in the ringgit on the open,” said Khoon Goh, a senior foreign- exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The lower oil prices will have an impact on the fiscal position if they stay this low.”
Brent was trading at $40.73 a barrel overnight, less than the $48 assumption in Najib’s budget for 2016. While Goh said the 1MDB asset sale means there’s no need for the government to bail it out, the reduction in oil prices will put the fiscal- deficit target at risk and some policy changes, such as spending cuts, will be needed.