Oil price war effects looms for all of us

December 14, 2014 0 By WFTV

Nevertheless, the drop in oil prices should be advantageous to Mauritius, and could ease inflationary pressures and boost the economy.

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While Analysts are claiming that Malaysia’s economic fundamentals are still intact, despite the ringgit falling and the oil price drop squeezing the country’s earning power, one thing is certain: The oil price war will be felt in 2015, if it is left unchecked.
Many other countries are facing similar dilemma, as Mauritius sees its sugar revenue trimmed by 40% after the fall of crude oil prices, which impacted on other commodities.
In Indonesia, the newly installed government is facing a crisis of confidence, with opponents openly targeting the country’s leadership for ‘lack of vision’ in what they understand as an unlikely slide of the Ruppiah.
Venezuela, battling internal conflicts and a long drawn confrontation with right-wing forces since the death of its former President Hugo Chavez, the already tense situation is made worse by the oil prices.
The country is heavily dependent on high oil prices, since its socialist economy is running on oil revenue. The loss of capital will impact on the government’s social welfare plans, thus fueling the opposition’s claims that socialism is a failure in the country.
In all cases, the current global scenario, with the Saudi Arabian decision to kill OPEC’s bargaining powers and to let the oil prices slide in an unprecedented price war, the people are going to find life harder and the countries affected will suffer revenue losses.

Malaysia’s dilemma
There are already talks of expenditure cuts to keep the fiscal deficit on target, but experts believe the authorities will prioritise operating expenditure cuts, over development expenditure cuts. This will favor the rich, while it will represent added burden on the workforce.
This will mean there might be a rationalisation of social assistance, the key to the Barisan National’s (BN) survival tactic that garnered support for the ruling coalition in the 2013 elections.
Cutting non-fuel subsidies will mean cuts in social spending, and programmes such as BR1M, and other related programmes.
In the current global scenario, Malaysia’s policy options are quite limited.
The country cannot prop-up its currency, which is facing a beating in the market. According to sources, foreign money is fleeing the stock market.
Reasons being, there is a lack of transparency in government dealings, coupled with a series of backtracking on a certain laws in the country.
Malaysia’s growth, it is said, hinges on non-regenerative growth such as real estate. To boost the economy, there is the need for foreign investors to see the seriousness in reforms in tackling corruption and leakages says opponents to the regime.
The world is in the face of the oil price crisis due to many economies over dependence oil revenues and the effects of Quantitative Easing in the United States.

Challenges for SAJ in Mauritius
The newly elected government in Mauritius, with Sir Aneerood Jugnauth as the new Prime Minister, will have to deal with global uncertainties in its economic calculations.
Commodity prices, including sugar, dropped as the dollar strengthened, while Brent oil sank to its lowest level in years against a backdrop of solid supplies and sluggish demand.
In the mean time, Sugar futures touched multi-year lows, weighed down by expectations of a large surplus of supplies.
“The sugar price appears to know only one direction: downwards, for global sugar supply is likely to remain plentiful despite the expected shortfalls in Brazil,” said Commerzbank analysts.
“The International Sugar Organization envisages the fifth surplus running at 2014/15, though this is not something upon which all observers agree.”
While this may impact on Mauritius economy, there are more urgent issues that the SAJ regime will have to tackle.
India reported that its FDI inflows from Mauritius have started drying up on fears of the impact of General Anti Avoidance Rules (GAAR) and possible re-negotiation of the tax avoidance treaty..
The inflows from Mauritius in the last fiscal are lowest since 2006-07. On the other hand, FDI inflow of $5.98 billion in 2013-14 is the highest ever received from Singapore since 2006-07.
Mauritius must lay down policies that will help it to continue to attract FDI’s.
In Mauritius, FDI flows are directed almost totally to the services sector, with activities such as finance, hotels and restaurants, construction and business experiencing soaring investments in the period 2007–2012.
The advantages Mauritus has is its transparent political system, its working democracy and economic stability.
These may attract foreign investors, who has lately been targeting a number of other industries, including financial services, tourism and offshore business services.
Nevertheless, the drop in oil prices should be advantageous to Mauritius, and could ease inflationary pressures and boost the economy.