Malaysia, Asia's largest net oil exporter, revised its economic targets this week to reflect plunging oil prices, but analysts warn the new forecasts may be too naïve as the world braces for an extended oil rout.
Oil-related income accounts for over 30 percent of Malaysia's revenue and with prices of global crude losing over half of their value since June, Prime Minister Najib Razak was forced to make changes to the 2015 budget on Tuesday after basing it on an oil price assumption of $100 back in October.
Among the revisions were a widening of the fiscal deficit target to 3.2 percent of gross domestic product (GDP) from 3 percent, a new oil price forecast of $55 per barrel, a GDP downgrade to 4.5-5.5 percent from 5-6 percent earlier and a budget deficit of 3.9 percent of GDP from 3.5 percent previously.
"The risk is that the fiscal deterioration may be more pronounced if oil markets turn out to be more bearish than the expected dent in oil revenues," said Cynthia Kalasopatan, market economist at Mizuho Bank, in a note Tuesday.
For example, if oil revenues decline by more than 20 percent from 2014, the fiscal deficit may rise to as much as 3.7 percent of GDP, Kalasopatan explained.
The International Monetary Fund expects persistent oil price declines throughout this year, Nomura sees prices falling to $30 and Goldman Sachs forecasts Brent around $42 a barrel.