PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

11 March 2010

Current Account Surplus Widened In the 4Q, But

Narrowed In 2009

◆ The current account surplus in the balance of payments rose by 8.0% qoq to RM27.3bn in the 4Q, from
a surplus of RM25.3bn in the 3Q. This was on account of a pick-up in merchandise trade surplus and a smaller deficit
in current transfer. These were, however, offset partially by a deficit in the services account during the quarter, a
reversal from a surplus in the previous quarter, while the income account suffered a larger deficit in the 4Q.

◆ The financial account, however, recorded a larger outflow of RM17.9bn in the 4Q, compared with an outflow
of RM11.1bn in the 3Q. This was due to a larger net outflow of direct investment, mainly on account of an outflow
of foreign direct investment during the quarter. A smaller inflow of foreign portfolio funds worsened the situation.
These were, however, mitigated by a smaller outflow of other investment.

◆ Consequently, the surplus of the basic balance in the balance of payments fell in the 4Q. This, together with a larger
deficit in errors & omissions, resulted in the overall balance of payments recording a deficit of RM3.0bn in
the 4Q, a reversal from a surplus of RM11.5bn in the 3Q.

◆ For the full year, the surplus of the current account in the balance of payments narrowed to RM112.7bn
or 17.3% od GNI in 2009, from a surplus of RM129.5bn or 18.1% of GNI in 2008. This was attributed to a smaller
merchandise trade surplus and a larger current transfer during the period. These were, however, mitigated by a
pick-up in the services account surplus, while the income account recorded a smaller deficit during the year. The
financial account, on the other hand, recorded a smaller outflow in 2009. As a result, the overall balance of
payments recorded a surplus of RM13.9bn in 2009, a reversal from a deficit of RM18.3bn in 2008.

◆ Going forward, the economic recovery will likely suck in more imports, leading to a smaller surplus in the current
account of the balance of payments in 2010. We expect the current account of the balance of payments to record
a smaller surplus of around RM97.1bn or 13.8% of GNI in 2010, compared with a surplus of RM112.7bn or
17.3% of GNI in 2009.

The current account surplus in the balance of payments rose by 8.0% qoq to RM27.3bn in the 4Q, from a
surplus of RM25.3bn in the 3Q (see Table 1). This was on account of a pick-up in merchandise trade surplus, which
rose to RM38.0bn in the 4Q, from a surplus of RM33.4bn in the 3Q, as qoq exports grew at a faster pace than that of
imports. A smaller deficit in current transfer, which recorded an outflow of RM4.7bn in the 4Q, compared with -RM6.7bn
in the 3Q, due to a pick-up in remittances by Malaysians staying abroad, also helped. These were, however, offset
partially by a deficit in the services account, which fell by RM0.4bn in the 4Q, a reversal from a surplus of RM0.1bn in
the 3Q, mainly on account of a larger net transportation payment, which was mitigated by a pick-up in net travel receipts.
Similarly, the income account recorded a larger deficit of RM5.5bn in the 4Q, compared with –RM1.6bn in the 3Q, due
mainly to higher repatriation of dividend income by multinational companies.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my
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 11 March 2010

The financial account, however, recorded a larger outflow of RM17.9bn in the 4Q, compared with an outflow
of RM11.1bn in the 3Q. This was due to a larger net outflow of direct investment during the quarter, which worsened
to –RM10.2bn in the 4Q, from –RM9.7bn in the 3Q, mainly on account of an outflow of foreign direct investment during
the quarter (a reversal from an inflow in the previous quarter), while outward direct investment continued, albeit by a
smaller magnitude. A smaller inflow of foreign portfolio funds, which eased to RM4.3bn in the 4Q, from an inflow of
RM18.6bn in the 3Q, worsened the situation. These were, however, mitigated by a smaller outflow of other investment,
which narrowed to RM12.0bn in the 4Q, from an outflow of RM19.9bn in the 3Q, due largely to a smaller outflow of other
private investments.

Table 1
Balance Of Payments

2008 2009 2008 2009 2010(f) 2011(f)

4Q 1Q 2Q 3Q 4Q

(RMbn)

Current account 129.5 112.7 29.6 31.4 28.8 25.3 27.3 97.1 98.5
(% of GNI) (18.1) (17.3) n.a n.a n.a n.a n.a (13.8) (13.0)
Goods 170.6 141.5 38.8 37.0 33.1 33.4 38.0 133.2 134.9
Services 0.2 3.2 0.4 2.5 1.0 0.1 -0.4 1.1 1.7
Income -23.7 -12.6 -5.6 -3.9 -1.5 -1.6 -5.5 -22.2 -23.1
Current transfers -17.5 -19.4 -4.0 -4.2 -3.9 -6.7 -4.7 -15.0 -15.0

Capital account 0.6 -0.2 -0.0 -0.0 -0.0 -0.0 -0.0 0.0 0.0

Financial account -118.5 -82.9 -71.8 -29.8 -24.2 -11.1 -17.9 -35.5 -21.5
Errors & omissions* -29.9 -15.7 -19.6 1.7 -2.4 -2.7 -12.3 -25.0 -20.0
Overall balance -18.3 13.9 -61.9 3.3 2.1 11.5 -3.0 36.6 57.0

Outstanding reserves^ 317.4 331.3 317.4 320.7 322.9 334.4 331.4 367.9 424.9
(US$)^ 91.5 96.7 91.5 87.8 91.5 96.0 96.7 111.5 132.8

(f) : RHBRI's forecast ^ : As at end-period

* : Reflect mainly revaluation gains/losses from Ringgit depreciation/appreciation and statistical discrepancies

Consequently, the surplus of the basic balance in the balance of payments fell to RM9.3bn in the 4Q, from a surplus
of RM14.2bn in the 3Q. This, together with a larger deficit in errors & omissions, which recorded a net outflow of
RM12.3bn in the 4Q, compared with -RM2.7bn in the 3Q, resulted in the overall balance of payments recording
a deficit of RM3.0bn in the 4Q, a reversal from a surplus of RM11.5bn in the 3Q.

In 2009, the surplus of the current account in the balance of payments narrowed to RM112.7bn or 17.3%
of GNI, from a surplus of RM129.5bn or 18.1% in 2008. This was attributed to a smaller merchandise trade surplus,
which narrowed to RM141.5bn during the year (+RM170.6bn in 2008), as exports fell more sharply than that of imports
during the period. This was made worse by a larger current transfer during the period. These were, however, mitigated
by a pick-up in the services account, which recorded a surplus of RM3.2bn in 2009, from a surplus of RM0.2bn in 2008,
mainly on account of higher net travel receipts. Similarly, the income account recorded a smaller deficit of RM12.6bn
in 2009, compared with a deficit of RM23.7bn in 2008, due mainly to higher repatriation of dividend and profit by
Malaysian companies abroad. The financial account, on the other hand, recorded a smaller outflow of RM82.9bn in 2009,
compared with an outflow of RM118.5bn in 2008. This was due to a turnaround in portfolio investment, which recorded
an inflow RM0.8bn in 2009, compared with an outflow of RM84.4bn in 2008. This was aided by a smaller net outflow
of direct investment, which fell by RM24.9bn in 2009, compared with -26.1bn in 2008. These were, however, offset
partially by a larger outflow of other investment (-RM58.9bn in 2009 versus –RM8.1bn in 2008) due largely to outflow
of other private investment. As a result, the basic balance of the balance of payments rose to a surplus of RM29.6bn
in 2009, from a surplus of RM11.6bn in 2008. This, together with a smaller deficit in errors & omissions, resulted in
the overall balance of payments recording a surplus of RM13.9bn in 2009, a reversal from a deficit of RM18.3bn
in 2008.

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 11 March 2010

Going forward, in tandem with a recovery in economic growth, imports are likely to grow at a faster pace than that of
exports. As a result, the merchandise account surplus is projected to shrink further in 2010. At the same time, the
deficit in the income account is projected to widen during the year, due to higher repatriation of investment income by
non-resident controlled companies, as corporate earnings improve. These, however, will likely be mitigated by a larger
surplus in the services account, which is projected to widen during the year, mainly on account of higher net travel
receipts. Similarly, repatriations of salaries and wages by foreign workers are likely to drop, in line with the Government’s
policy of reducing the employment of foreign workers. As a whole, we expect the current account of the balance of
payments to record a smaller surplus of around RM97.1bn or 13.8% of GNI in 2010, compared with a surplus
of RM112.7bn or 17.3% of GNI in 2009. The surplus in the current account, albeit smaller, will continue to boost foreign
exchange reserves of the country as well as fuel liquidity in the financial system and provide an underlying support to
the ringgit.

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