Sunday, September 22

Malaysia’s current account surplus highest in five years


KUCHING: Malaysia’s current account surplus reached to the highest levels in five years in the first quarter of 2019 (1Q19) as goods surplus rose amidst a fall in imports while the services and income deficits narrowed.

The current account surplus in the balance of payments (BOP) rose to the highest level in five years of RM16.4 billion in 1Q19 from a surplus of RM10.8 billion in 4Q.

This comes as the goods surplus rose amidst a fall in imports, while the services and income deficits narrowed.

Economist Vincent Loo from RHB Research Institute Sdn Bhd (RHB Research) saw that merchandise trade surplus widened further to RM33.8 billion amidst lower imports of production inputs and capital goods, which offset lower exports.

Meanwhile, the services account registered a smaller deficit of RM1.8 billion in 1Q19 due mainly to lower net payments for foreign transportation services in tandem with more moderate trade activity.

The travel account also recorded a higher surplus due to lower outbound travel payments.

“The primary income also registered a lower deficit of RM10.1 billion during the quarter, mainly due to lower portfolio investment payments.

“In contrast, the current transfers (secondary income) deficit increased to RM5.5 billion on account of higher remittances of foreign workers back to their home countries,” Loo said in a statement.

“The financial account saw net outflows more than double to RM13.8 billion driven mainly by other investments, which was partly mitigated by net inflows registered in the direct and portfolio investment accounts.

“Other investment account recorded a net outflow of MYR31.9bn as a result of repayment of inter-bank borrowings by domestic financial institutions.”

Meanwhile, the direct investment account saw net inflows surging to RM16.3 billion, supported by larger FDI inflows. Meanwhile, direct investments abroad by Malaysian companies recorded a lower net outflow during the quarter.

The portfolio investment account registered a net inflow of RM2.1 billion, a reversal from net outflow of RM5.8 billion in the previous quarter. This was helped mainly by inward portfolio investments into the debt securities market but partly offset by higher outward investments by residents.

“The overall balance of payments registered a surplus of RM5.5 billion in 1Q19 a reversal from RM6.1 billion deficit in
4Q18 after taking into account errors and omissions of RM2.9 billion.

“Looking ahead, we maintain our 2019 current account surplus forecast at RM38.8 billion, or 2.5 per cent of GDP for 2019, widening slightly from 2.3 per cent of GDP for 2018 as the slowdown in trade may continue to cap import growth more than exports as seen in 1Q19.”

Kenanga Investment Bank Bhd (Kenanga Research) saw that pre-emptive measures have been put in place by Bank Negara Malaysia to improve market stability and stanch capital outflow.

“The crux of the measures includes improving the repo market marking activity, enhancing the delivery for MGS futures settlements, expanding the dynamic hedging program to include trust banks and global custodians, providing flexibility for investors to enter forward contracts to buy ringgit, introducing standard documentation for forex transactions, and enhancing provision of Ringgit liquidity beyond local trading hours,” it said in a separate note.

“Apart from ensuring financial stability, the government has revived most of if not all major infrastructure projects and is seen to be more focus in providing clearer policy direction.

“Though there is still more work to be done, we believe these measures may address some concerns raised by FTSE Russell and allay fears of a potential credit rating downgrade.”

Given the sharp upswing in current accounts in 1Q19, Kenanga Research revised its whole year forecast for current accounts to 2.5 per cent of GDP from 1.7 per cent.