When Malaysian oil giant Petronas announced sharp spending cuts and described a dismal outlook this week, it was confirmation for millions that they will struggle to make ends meet this year amid high costs, a plunging currency and fewer jobs.
The country’s only Fortune 500 company, state-owned Petroliam Nasional Bhd drove Malaysia’s modernisation push in the last two decades that was symbolically crowned by its construction of the world’s tallest twin towers in the heart of Kuala Lumpur.
But as the oil boom turns to bust, Petronas – and with it Southeast Asia’s third-largest economy – is slowing down, and Malaysians are bracing for hard times. The company is one of Malaysia’s biggest employers, and accounts for nearly a third of the government’s oil and gas-related revenue.
All this piles pressure on Prime Minister Najib Razak, whose popularity has already been battered by rising costs, a new goods and services tax aimed at plugging the fiscal hole, and a scandal over millions of dollars mysteriously deposited in his personal bank account.
It could also fuel social unrest in a country where thousands took to the streets last year calling on Najib to resign.
“It’s going to be challenging this year given the falling oil price,” said Michael Wan, a Singapore-based Credit Suisse economist. “Unemployment will rise. A lot of it will come from the oil and gas side. You put that with lower commodity prices and weaker ringgit, all in all it points to weaker private consumption this year.”
A slump in oil prices to below $30 per barrel is squeezing Malaysia’s finances, along with the drop in ringgit, the worst-performing Asian currency last year, when it lost around a quarter of its value against the dollar.
Petronas’ business review, announced on Tuesday, includes a plan to cut its spending by up to 50 billion ringgit ($11.4 billion) over the next four years.
“Take Two Jobs, Grow Vegetables”
As falling commodity prices, sluggish growth and dollar outflows take their toll on a region battered by the 1997/8 financial crisis, Malaysia is emerging as Southeast Asia’s weakest link.
Spreading the pain across the economy, Najib is expected to cut government expenditure when he revises the 2016 budget next week to reflect the slide in oil prices.
Consumer confidence was already at a 10-year low in the third quarter, according to a Nielsen survey, and private consumption is slowing. The country posted its slowest growth in more than two years in the third quarter of 2015.
Another worry is rising debt, one reason cited by Moody’s for cutting Malaysia’s sovereign ratings outlook.
Household debt has risen by more than 15 percentage points of GDP since 2009 to around 87 percent as of end-2014, levels similar to more advanced, higher-income economies, Moody’s said.
Petronas said this week that contract jobs in the company’s non-core businesses would be affected. Other companies in the oil and gas sector are also cutting jobs as they pull back from projects to save costs.
The country’s unemployment rate rose to 3.2 percent in November, from 3.1 percent in the prior month, Malaysia’s department of statistics said on Friday.
“Employees in oil and gas are trying to switch, especially in the support functions. They are going to be flooding into other industries,” said Guru Mani, country manager for recruitment firm Reed Global.
A senior cabinet minister was widely ridiculed last month for suggesting that Malaysians should take two jobs to meet their rising costs, as were others who advised people to grow their own vegetables and avoid road tolls to save money.
“When ministers tell the people to wake up earlier in the morning to avoid tolls, get multiple jobs and grow their own vegetables, it’s clear they are disconnected from their people,” said Shen Lim, who works as a video producer in Kuala Lumpur.
The public scorn poured on Najib’s cabinet will be a setback for the long-ruling UMNO alliance, which needs to build support ahead of a general election due in 2018.
UMNO scraped to a narrow victory in the 2013 poll – losing the popular while still winning a majority of seats in parliament – but that was in better economic times.
Still, many people do appear to be trying the two-job idea.
Ride-hailing app Uber expects to sign up 100,000 new Malaysian drivers in 2016 as they look for additional income.
“The flexible, part-time model means … it creates economic opportunities in a very challenging time,” said Uber General Manager Leon Foong.