An insight into Malaysia's balance of payments problem and efforts to overcome it

Abstract

The Minister of Finance recently called for a national compaign involving all Malaysians to help overcome 'our Number One problem and our Number One priority in the field of economic management'. He was referring to the country's balance of payments problem. The purpose of this paper is to provide an insight into the problem currently confronting the country in its balance of payments position and on-going Governmant efforts to address the problem in the short and long term. Malaysia's balance of payments position during most of the 1960s and 1970s has been favourable. This has been made possible by her merchandise trade account which has been in constant surplus especially during the export boom year. Her services account, however, has always been in deficit which has been increasing since the late 1970s. Thus, except during the export boom years, Malaysia has experienced deficits in her current account during the last two decades. To be sure, there was nothing wrong with these deficits then, since Malaysia, as a developing country, is by definition, a net capital importer. What mattered was that these deficits were temporary and were in fact soon reversed. In any case, Malaysia's current account deficit has been amply supported by private and official capital inflows sourcing from outside the country and this has resulted in the country's overall payments position being, to a large extent, consistently in surplus.