It’s neither as good as I hoped, nor as bad as I expected (you can read the speech here).
The government expects revenue to drop by RM13.8b in oil & gas related revenue, with some uptick from other sources. There will be cuts in operating expenditure along with the savings from the abolishment of petrol and diesel subsidies. Development expenditure will be held constant, based on the original budget estimates.
I won’t go into any detail on the specific measures (though the flood assistance programs are worthy of note), but the overall picture results in an increase in the forecast deficit to 3.2% of GDP, a little above the 3.0% original target.
That’s good – it provides a little more support for the economy; it’s also bad, because it’s not nearly enough to cover the potential shortfall in national income (the increase is just RM2b). Inasmuch that most of the adjustment costs will be borne by the oil & gas sector, that’s – maybe – okay. With sincere apologies to those affected, employment in the O&G is a fairly minor portion of the labour force, so the welfare impact won’t be very large. More crucial will be cuts in O&G capital investment, which takes off a fairly hefty portion of private investment growth off the table.
All in all, a reduction in growth is a probable outcome, which would have been more fully mitigated if the government hadn’t cut opex.
I’m not yet privy to the detailed estimates, which would paint a more complete picture. Some of the numbers don’t quite add up. I don't want to speculate yet without the detailed information, but I'll post on it if and when I get them.