Najib Razak, the former prime minister of Malaysia, warned that the country is headed for an economic collision of massive proportions should ICE Brent Crude contracts trade below $70. As of Friday, Brent Crude contracts settled at 70.18, which he also warned that Moody’s decision to downgrade the country’s credit rating to negative could be imminent.

The former prime minister, who was previously arrested in July for involvement in the 1MDB scandal, explained in a Facebook post that the recent bear market in oil would see the country’s deficit explode and the Malaysian ringgit continue to depreciate as the Federal Reserve signals further rate hikes.

“The pressure on the government’s fiscal position will double,” Razak warned.

This, Razak said, the country would have to issue a higher dividend to cushion the shortfall in revenue for Petronas, the country’s national petroleum company.

In doing so, he said that could severely impact Malaysia’s credit rating for 2019.

“This is when oil prices are said to be high and stable. But what if oil prices drop?… What buffer do we have to cushion an oil crisis, if it happens again?,” he questioned. 

On Thursday, Moody’s affirmed the A1 domestic issuer and foreign currency senior unsecured ratings of Petronas but altered its outlook from stable to negative.

“The rating agency also affirmed the A1 rating for Petronas Capital Ltd’s senior unsecured notes and the US$15 billion medium-term note (MTN) programme as well as sukuk issued through Petronas Global Sukuk Ltd, but changed its outlook to negative from stable.

Moody’s said the rating action was due to the government’s announcement that Petronas would be paying RM26 billion in dividends in 2018 and RM54 billion (inclusive of a one-off special dividend of RM30 billion) in 2019,” Free Malaysia Today.

Moody’s also said the 2019 budget indicates Malaysia’s high debt levels are likely to continue for longer than expected, as deficits break above 3% of GDP for the next several years.

On November 02, prime minister Dr. Mahathir Mohamad said Petronas could afford to contribute the RM30 billion special dividend to the federal government in 2019 due to higher oil prices.

“Yet, the Pakatan Harapan government is depending a lot on oil in 2019, and if the price of oil plunges below US$70 as projected, the Malaysian economy could experience an economic crisis,” said Razak.

Razak’s warning of an immient economic crisis in Malaysia is coming at a time where a global slowdown is beginning to materialize for 2019.

The sharp drop in global equities in October was a remarkable warning shot that trade wars, monetary tightening, and a commodity bust in energy are some of the fundamental triggers of the next global crisis.

During a turning point in an economic cycle, the weakest balance sheets, if that is of companies and or countries, tend to break first.

All eyes of Malaysia for 2019, as it could be the canary in a coal mine for the next economic crisis.

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