ECONOMIC UPDATE - BoP review - First surplus since 2011



First current account surplus

Bank Indonesia (BI) reported Indonesia’s balance of payments (BoP) surplus of USD2.05 bn in 3Q20 (vs. USD0.04 bn deficit in 3Q19). In line, current account recorded surplus since 2011 where in 3Q20 it stood at USD0.96 bn (0.36% of GDP) (vs. deficit at USD2.9 bn in 2Q20). The reversal in current account happened due to surplus in trade balance. The export performance supported current account while the import still subdued. However, service account showed a wider deficit trend due to the plunge of foreign travelers coming to Indonesia. Besides, the wider deficit in service account came from the imported services related to online activities such as telecommunications and information services that have increased during the pandemic. The biggest laggard came from primary income where it contributed USD7,59 bn of deficit in current account mainly driven by increasing yield payments on direct investment. Overall, this sends positive sentiment that Indonesia’s external resilience shows stronger figure amid the pandemic although this will be temporary, as imports will gradually increase as the economy recovers.


Blessing in disguise

In overall goods account, it showed a significant jump from USD3.96 bn in 2Q20 to USD9.79 bn in 3Q20 (+148% QoQ). The export of goods increased by 17.9% QoQ where the import decreased by 1.21% QoQ. Non-oil and gas (non-OG) trade surplus increased significantly by 187% QoQ to USD9.44 bn where the export growth was 19.2% QoQ supported by the fall of import by 0.59% QoQ. The higher export value was due to the higher prices of Indonesia exported commodities around 19.6% QoQ. Meanwhile, OG sector trade balance remained deficit at USD0.71 bn where the price declined by 12.5% QoQ as the global demand has not fully recovered yet. Therefore, the narrowed CAD was mainly led by non-OG trade surplus. 


Financial account recovers limitedly

After posting deficit USD3.07 bn in 1Q20 of financial account, it bounced back to surplus USD10.6 bn in 2Q20. However, the recovery slowed down to surplus USD1.04 bn in 3Q20. The lower surplus was due to the rebalancing of portfolio investment due to heightened global financial markets uncertainty. Direct investment inflows were maintained surplus but it slipped by 71.9% QoQ. Other investment transactions experienced a surplus driven by withdrawal of loan commitment to support the financing of National Economic Recovery (PEN) program, as well as the withdrawal of private sector deposits abroad in line with the need for foreign loan payments. Meanwhile, portfolio investment recorded net outflows totaling USD1.89 bn (vs. net inflows of USD9.78 bn in 2Q20). We see the outflows happened as foreign portfolio investors seek safe havens in the face of the uncertainty.


Expect more in 4Q20

As the current condition related to Covid-19 pandemic is getting manageable, we see Indonesia may attract once more capital inflow in the rest of 2020 if the government contains Covid-19 well. However, we see the current account surplus will not be lasting as the economic recovery occurs in 2021 especially we have passed the rock bottom in 2Q20. Indonesia’s import will be increasing as domestic industries can operate again due to the so-called government’s new normal. With policy mix from the government and BI, we are sure that 4Q20 will be better than 3Q20. Unfortunately, we see the better external resilience will be insufficient enough to hold the exchange rate at the current level. We see the current rupiah appreciation was made of short-lived positive sentiment after the US election. We expect rupiah will be at Rp14,439 against USD in YE 2020.