Oil price collapse - our economic ecosystem needs instant response

In light of the recent collapse in oil prices, PAS Central’s Economic, Real Estate and Entrepreneur Development Committee has been monitoring the nation’s economic climate closely.

At the time of writing, the West Texas Intermediate crude is trading at US$32.98 per barrel, despite having recouped Tuesday a portion of the 25 percent fall in oil prices over the last week (the Brent having fallen 26 percent). Such a drastic fall within such a short period is guaranteed to precipitate a substantial adjustment to the country’s economy, where almost 40 percent of it depends on oil revenue.

The Malaysian Treasury estimates that every US$1 decline in global oil prices is equivalent to some RM300 million impact on the Malaysian economy. Hence the committee’s call for urgent measures to be taken to mitigate the anticipated effects, stabilise the economic cycle and offset the potential drag on the overall economy. 

Key to this will be the focus on enhanced productivity and at the very least maintaining the respective industries’ efficiencies in order to minimise the effect of diminishing returns.

Focal points must include:

1. Savings with minimal carry-on effects are crucial from both the industry and consumer. Hence enhanced cost optimisation must be carried out across the board, be it at supply or demand points.

All cost structures have to be re-examined to ensure whatever savings are passed on accordingly. Enforcement is therefore crucial to ensure the economy benefits where it can and helps offset losses at other points.

We must also use this opportunity to minimise waste and corruption to the point of elimination. The World Bank estimates corruption can affect up to 30 percent of a country’s GDP, while taxation oversights contribute a further 20 percent in losses – both of which the country cannot afford to absorb at this juncture.

2. Malaysia’s entire taxation system must be re-evaluated and revamped to optimise the government’s collection and maximise revenue at a time when every cent counts to offset the effects of the oil price collapse. 

This includes the digital economy’s tax structure – for which there is absolutely none now - that needs to be quickly plugged to ensure the country benefits accordingly.

3. The nation’s labour productivity also must be addressed in order to ensure optimal production levels, hence the price index could be kept optimum. 

Supply must be able to meet demand at a new optimum price that ensures minimal disruption to employment and the larger labour force’s disposable income which will, in turn, minimise inflationary pressure.

---

MAZLI NOOR is vice-chair of PAS Central’s Economic, Real Estate and Entrepreneur Development Committee. - Mkini