Balance

of Payment

1
 Record all international transaction between
one country and another for a period of time
(normally annual)

 Balance of payment records surplus if

foreign receipts is larger than foreign
payment.

2
 BOP reflects a combination of following
transactions:

 Export and import for goods

 Export and import for services
 Transfer payment between countries
 Capital transaction
 Gold movement and foreign exchange
direction

3
 Example BOP

Current Account Balance = -$70,000

Capital Account Balance = $45,000

Financial Account Balance = $60,000

Overall BOP Balance = -$70,000 + $45,000 + $60,000 = $35,000

Historical Statistics of BOP
Current Account BOP Performance
Period of 1960 - 82
 Balance of payment:
 A stable balance due to surplus in export and
import for goods since 1950s to 1980.

7
 Period of 1960 – 82
(continued)
 BOP for services:
 Always negative
 Malaysian services import is greater than
Malaysian export for services.
 Consist of
 Services receipt
 Services payment

8
 Period of 1960 – 82
(continued)
 Current account BOP:
 Consist of BOP for trade, services and transfer
account.
 Reflect good and services net exchange for financial
instrument and net transfer for non-financial instrument.
 Deficit in current account occurs due to deficit in
transfer account as a result of net payment in pension
and remittance.

9
 Period of 1960 – 82
(continued)
 Capital account BOP:
 Record surplus since1961 – 78 and early1980
 Most of the time during 1961 – 78, capital account
performed better than current account to balance deficit in
current account.
 Capital inflow is due to foreign debt by government and
statutory body to fund development project.

10
 Period of 1960 – 82
(continued)
 Basic BOP:
 Consist of BOP for current account and
long term capital account.
 Basic BOP was positive every year from
1961 – 78 and 1980 -82.
 Net inflow of long term capital account is
more than enough to cover deficit in current
account.

11
 Period of 1960 – 82
(continued)
 Total BOP:
 Obtained after taking into account short term
private capital and errors and ommissions in
BOP.
 Total BOP was positive for many years except
1961, 1967, 1981 dan 1982.

12
 1980s
 A drop in BOP was mainly due to world
recession.
 Only after 1983, economy was about to recover.
 Goods account was recovering with an increase
in export demand.
 Current account surplus and positive inflow were
able to balance deficit in services account to
achieve overall positive BOP.

13
 1980s (continued)
 Deficit in service account declined.
 Surplus in capital account in 1983 due to long term
capital inflow, trade credit, and corporate body
investment.
 Basic balance records surplus
 Total BOP recorded surplus after taking into
account of short term private capital inflow and
errors and omissions.

14
 Period of 1983 – 86
 Trade balance recorded surplus.
 Long term capital balance was positive.
 Services BOP was negative
 Total BOP recorded surplus with private
capital inflow and errors and omissions
recorded increasing surplus.

15
 Period of 1987 – 92
 Total BOP was positive 1987 – 1992 except in
1988
 1989, BOP was positive.
 Services account continued to record deficit.
 Surplus in BOP in 1990 showed positive trend as a
result of economic development.

16
 Period of 1987 – 92
(continued)
 Trade account recorded its first time deficit
in 1991.
 1992: surplus in BOP with three time higher
than surplus in 1991.

17
 Period of 1993 - 2000
 1993: Positive BOP
 1994 and 1995: Negative BOP
 Deficit in services account was getting
bigger.
 BOP recovered after economic
recession.

18
 Problem and Prospect in
BOP
 The strength of BOP is important as Malaysia
depends on world economy.
 Related issues in BOP:
 Up and down in export growth.
 Increase in import intensity
 Increase in foreign net payment for services.
 Weakness in investment fund.
 Foreign debt

19
 Export Growth Volatility

 In early 1980s, world economic recession slowed

down demand and price for mostly Malaysian
export products.
 For manufacturing product, it was worsen by
developed countries policy to protect their
products.

20
 Increase in Import Intensity
 Import intensity put pressure on BOP.
 Increase in capital and intermediate
good import as well as investment.

21
 Increase in Foreign Net
Payment for Services
 Two leading factors:
 Foreign net payment for investment income.
 Transport and insurance services.
 Dependency on services import was
unavoidable.

22
Weakness in Investment Fund
 Deficit in current account indicated demand was
higher than local available resources
 Weakness in investment fund= weakness in
resources high aggregate expenditure
compared to local production which resulted in
the deficit must be covered with foreign import.
 Deficit in investment fund started in early 1980s.

23
 Foreign Debt
 Unpaid foreign debt increased three times
between 1981-83.
 Malaysian foreign debt was considered low
compared to other developing countries.

24
 Conclussion
 Since 1982, government took several initiatives to
control public sector spending.
 Expand national export.
 BOP played important rules in country
development.
 Deficit in BOP put pressure on local resources and
slowed down economic growth.

25
Current Account BOP Q22021
Historical Development of FDI Performance
Historical Development of DIA Performance
FDI & DDI by Countries (Q221)
Detail FDI & DDI by Sector (Q221)