Malaysia Facing Current Account Deficit Risk: Ubs

Malaysia faces the risk of falling into current account deficit as early as year-end, no thanks to the continuing weak global crude oil price, according to a research analyst.



Paul Donovan, managing director (Global Economic) of banking group UBS, told The Anadolu Agency on Tuesday that with the expected recovery in crude oil price not taking place it poses a threat to the current account surplus that Malaysia enjoyed for a long time.



"The government had some operating expenditure cuts earlier this year, on aspirations that crude oil prices might recover to a respectable level later this year, but the trend is nowhere to be seen," he said.



That oil revenue dividend inconsistency is likely to effect Malaysia's government-owned oil firm Petronas for the next two to three years, until the crude oil price recovers to average $80 per barrel. 



Donovan said the risk of current account deficit might happen at end of this year or early next year, with the situation only avoided if there is a sudden rise in the global crude oil price.



Oil revenue makes up to 30 percent of the Malaysian government's earnings. In January, it revised its 2015 budget numbers based on the assumption that the price of oil would average around $55 a barrel throughout 2015.



On Tuesday, however, Brent crude oil stood at $64 per barrel while the WTI crude oil price was US$64 per barrel.



According to financial website Investopedia, a nation's current account is the difference between its savings and its investment. It is defined as the sum of the balance of trade (goods and services exports minus imports), net income from abroad and net current transfers.



The current account is an important indicator of an economy's health, with the trade balance generally the biggest determinant of the current account surplus or deficit.



Malaysia's current account surplus narrowed by almost a third to RM7.6 billion ($2.13 billion) between the first and third quarter of 2014, and the prospect of a deficit was looming then, as oil and gas export earnings fall.



Malaysia has incurred debts of 53 percent of the Gross Domestic Product (GDP) while Malaysia's household debts are about 86 percent of GDP.



www.aa.com.tr/en - Kuala Lumpur