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MIER expects Malaysia’s balance of payments to improve

KUALA LUMPUR: The overall position of Malaysia’s balance of payments (BOP) is likely to improve, registering a surplus again with an expected strong recovery in the global economy this year and contributing to an accumulation of international reserves.

According to the Malaysian Institute of Economic Research (MIER), the net current account balance (NCAB) of BOP has also improved, registering a surplus of RM26.7 billion in the first half of 2021 (1H 2021).

“This surplus was approximately 3.6 per cent of nominal gross domestic product (GDP), higher than 2.5 per cent in the corresponding period last year,” it said in its Malaysian Economic Outlook third quarter 2021 report released on Friday.

The research institute said the current account of the BOP is expected to improve further in the next two quarters of this year, continuing the recorded surpluses in the previous years.

“Meanwhile, financial account balance which declined by approximately two times is expected to improve, registering a smaller deficit on account of expected higher net inflows of both foreign direct investment and foreign portfolio investment,” it said.

It said this would augur well for the Malaysian economy on the external front, helping to improve investor sentiments, both at home and abroad.

On the domestic front, it said the federal government is struggling hard to ensure continued current account surplus of its financial position.

“Current balance could possibly turn to a deficit, which is a very rare event, in view of the fact that current balance needs to be in surplus, meaning that revenue collection must always cover operating expenditure as a rule of thumb for prudent management of public finance,” it said.

MIER said continuing higher operating expenditure, especially for emoluments and debt service charges and moderate revenue collection, would see net borrowings continue to increase to support higher net development expenditure as allocated in the Budget 2021 and the forthcoming Budget 2022.

“Taking into account expenditure on COVID-19 Fund, which is substantially high to ensure that public health safety is given an utmost priority in the current tough environment, overall deficit of the federal government finance is expected to continue to be higher, moving closer to six per cent of nominal GDP this year,” it added. – Bernama

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