Malaysia’s External Balances: When Strong Roots Meet Fragile Branches

In the latest report on Malaysia’s economy, one number jumped out: our Current Account Balance (CAB) almost disappeared in the second quarter of 2025. From a healthy RM16.7 billion surplus in the first quarter, it shrank to just RM0.3 billion. To put that in perspective, it’s like running a household budget where last month you saved RM1,670, and this month you only managed RM30.

Does this mean Malaysia is in trouble? Not necessarily. But it does mean we are walking on thinner ice than before.

A Look Back in Time

For those who remember the mid-2000s, Malaysia used to enjoy big external surpluses. Between 2005 and 2012, our CAB often made up 5% to 11% of the economy. Back then, our export machine was running strong, and the extra savings acted as a cushion against global shocks.

But the story changed. Since 2015, the surplus has narrowed. More of what we earn abroad leaks out through imports and profit repatriation by foreign companies. Then came the pandemic, when tourism collapsed. The once reliable current account shrank, and we had to lean more on our savings and reserves.

What’s Happening Now?

Today, we see a mixed picture. On one hand:

Tourism is back. Services exports hit RM63.7 billion in Q2 2025, with foreign tourists spending almost RM26 billion here. This recovery has helped keep our balance sheet in the black. We own more abroad than we owe. Malaysia’s International Investment Position (IIP) is positive by RM63.1 billion. In simple terms, our overseas assets are bigger than our liabilities. That’s like having more money in your bank than debts on your credit card. Reserves remain strong. Bank Negara still has half a trillion ringgit in international reserves, which is like the emergency fund of the nation.

On the other hand:

The surplus is fragile. CAB swinging from 3.4% of GDP in Q1 2025 to 0.1% in Q2 shows how quickly our cushion can vanish. Foreign investment inflows slowed. Only RM1.6 billion came in last quarter, small compared to the stockpile of RM1 trillion we’ve built over time.

Roots and Branches

Think of Malaysia’s external accounts as a tree. The roots, our international reserves, foreign assets, and growing service sector, are strong and deep. They anchor us firmly. But the branches, the current account that sways with exports, imports, and income flows, are thin and fragile. A sudden gust of wind, such as a global slowdown or commodity shock, could make them snap.

Why This Matters to Us

A strong external balance doesn’t just matter to economists. It influences the ringgit’s strength, the confidence of investors, and even the prices of goods we import. When the CAB is weak, our economy is more vulnerable to outside storms. When it is strong, we stand taller in the global marketplace.

The Way Forward

If Malaysia wants to rebuild the branches, we need to:

Keep the surplus healthy, at least 2% of GDP is a safe cushion. Encourage more steady FDI inflows to complement the solid stock we already have. Deepen tourism and services while balancing what Malaysians spend abroad. Guard the IIP and reserves, our hidden strength.

Closing Thought

The latest figures remind us of a simple truth: Malaysia is not without strength. Our roots are strong. But we cannot afford to ignore the fragile branches. To grow steadily into the future, we must nurture both, the roots that keep us grounded, and the branches that reach for the sky.