BALANCE OF PAYMENT

by Choon Hoo, Kuang Yong, and Jenn Yun

The balance of payments is a record of economic transactions between residents of Malaysia and the rest of the world for a specific time period. The broad categories of data presented under three heading comprises of current account such as imports and exports of goods, services, primary income and secondary income; capital account such as non-produced non-financial assets and capital transfer; and Financial account such as assets and liabilities of direct investment, assets and liabilities of portfolio investment, financial derivatives and other investments and reserve asset. A surplus occurs when the balance is positive, while a deficit occurs when the balance is negative. Balance of payment is important because it helps to decide the trade, industrial and economic policies of the government, and helps economists and analysts understand the strength of a country's economy in relation to other countries.

Based on the data from Bank Negara Malaysia in the year 2017, the current account shows a surplus that increased from the quarter 1 to quarter 2 in the year 2017. Current account increases supported by the higher surplus of net export of goods, lower deficit in services from travel, other business services, and construction, and the lower deficit in income from primary income. However, the capital account shows a surplus that decreased from the quarter 1 to quarter 2 in the year 2017 due to the greater increase in the capital outflow and decline in capital inflow. Moreover, the financial account shows an increase from the deficit in quarter 1 to surplus in quarter 2 for the year 2017. Reason due to the foreign direct investment (FDI) and direct investment aboard (DIA) that bring the main impact on the portfolio investment. Balance of payment is important to the government in order to make decision on the policy and to ensure stable in the country’s transaction and economy.

 The improvement of balance of payments in Malaysia can be achieve by implement some policies such as trade policy measures, expenditure-reducing policies, and expenditure switching policies. Government implement trade policy measures by expanding exports and restraining imports. Moreover, expenditure-reducing policies are using the tight monetary policy and concretionary fiscal policy to reduce aggregate expenditure in the economy to improve the balance of payments. Furthermore, expenditure switching policies is the devaluation policy it decides to lower the exchange rate of its currency to improve its balance of payments.