The current account of Malaysia was at MYR 25.2 billion which is the 2.1% surplus of GNI (Gross National Income) in 2016. A surplus means that the economy has been saving more than investing.
This results into an increase in foreign assets in Malaysia’s international reserves or increase in investment in foreign countries. Malaysia’s current account is influence by three major factors. First, the global economy was experiencing slow growth. In fact, the global growth was recorded the lowest in 2016 since the Global Financial Crisis due to decreased investments activities and decline in commodity prices.
Inflation was below the target of many central banks. Investors’ scepticism grew when UK had its EU referendum and the US had their presidential election. This raised concerns on the future performance of the economy.
Thus, policymakers were faced to make policies that will deliver short term growth and maintain the momentum to achieve sustainable growth in the long run. Second, sharp decline in commodity prices which were also due to lower inflation. Lastly, investment in the Malaysian economy, particularly by the private sector, has continued to expand. This resulted in lower goods surplus, higher services and income deficits.Other factors that influence the current account are the components that actually make up the current account such as export surplus. Difference in imports and exports of MYR 101 billion in 2016 were lower than in 2008 (MYR 170 billion). Rapid expansion and large infrastructure projects such as MRT meant an increase in capital imports.
Travel surplus in the current account were still high but has been gradually declining. Increase in overseas travel is because of the growing middle income in Malaysia and the increased affordability of overseas travel, following the rapid expansion of low-cost carriers in Malaysia such as AirAsia and Malindo Airs. Modest income growth in foreign countries and rising tourism competition in the region contributed to a slower increase in inbound travellers in recent years. Payments for foreign service providers have also increased while domestic technical expertise and consultancy management services have steadily increased particularly for projects that use more complex technologies. Foreign services that require skilled and specialised knowledge have been used, mainly by the oil and gas, transportation and the utilities sectors.Investment income has remained sizeable although Malaysian companies investing abroad were affected by the weaker global demand conditions. Foreign investors in Malaysia, particularly those in the manufacturing sector continue to earn sizeable profits from their investments in Malaysia.
Foreign worker remittances also continued to grow due to the increased reliance on foreign workers in the labour-intensive sectors of the economy. The private sector contributed more than the the public in the investments in Malaysia. 92% of total private investment in 2015 were to implement large infrastructure projects and expansions in high value-added services, manufacturing and mining sectors. Development expenditure by the Federal Government also supported public investment, focusing mainly on education, healthcare, housing, transport system and industrial infrastructure spending.
On the whole, not only investments by the private sectors but also include the public sectors are important to boost Malaysia’s productive capacity, industries need to enhance efficiency and connectivity, and to drive the growth of high value-added exports in the future. However, some risks of overinvestment in less productive sectors, as manifested by the oversupply of commercial properties, should always be monitored and managed to avoid any circumstances. Moderating trend is to lower private sector savings among sustained savings by the public sector. When the private savings were lower, derive from the modest growth in the operating surplus of firms and continued strength in household consumption.