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ECONOMIC UPDATE - BoP review - Current account thick surplus



Biggest current account surplus in 12 years

In 3Q21, current account balance posted the biggest surplus in 12 years at USD4.47 bn (1.49% of GDP) reversing the deficit at USD1.97 bn in 1Q21 (-0.45% of GDP). The surplus came from the thick trade surplus at USD15.0 bn due to strong exports driven by the commodity prices hike. However, service account remains deficit at USD3.63 bn due to the deficit on online activities (telecommunications, information services, etc.) as well as the deficit of transportation services trade as the result of rising freight services payment in line with the improving imports. The thick current account surplus sends positive sentiment that Indonesia’s external resilience remains solid heading to the economic recovery.


BoP reading in 3Q21

The balance of payments (BoP)  recorded at the biggest surplus since 2017 at USD10.7 bn. The surplus on BoP was supported by the solid current account, capital and financial account. With the better figure, BoP reversed the previous BoP from deficit USD0.45 bn in 2Q21. Thanks to the global commodity prices hike that enables Indonesia to improve trade performance as Indonesia is commodity-exporting country. Moreover, the capital and financial account contributed as much as USD6.09 bn in line with the maintained optimism of investors towards the domestic economic recovery. With thicker BoP surplus, it increases the foreign exchange (forex) reserves and stabilizes exchange rate. The forex reserve in Oct-21 was high at USD145.5 bn, equivalent to 8.3 months of imports and servicing government external debt or well above the international adequacy standard.


Thanks to commodity price hike

The value of export of goods is dominated by 45.2% of current account surplus where the biggest value came from the non-oil and gas export. In 3Q21, many major commodities have been holding near record highs and it has been strengthening Indonesia external resilience. The export jumped by 13.7% QoQ where the import growth was lower by 1.58% QoQ. Compared to the previous quarter during this pandemic, the trade performance has been improving.


Larger surplus on financial and capital account

The financial and capital account posted a surplus of USD6.09 bn (vs USD1.64 bn surplus in 2Q21). The surplus mostly came from the net inflow of direct investment, which was maintained at USD3.28 bn. However, it plunged so hard by 38.2% QoQ alongside with the plunge of portfolio investment was deeper at 71.3% QoQ to USD1.14 bn. The significant decrease is understandable as the 2nd wave of Covid-19 pandemic happened in 3Q21. Other investment also recorded surplus after experiencing a deficit in the previous quarter, induced by lower net repayment on foreign loans, higher placements of non-resident deposits to domestic banks and additional Special Drawing Rights (SDR) allocation. 


Turning table

Compared to previous quarter, market feared the pandemic with its containing efforts by the government. But, the table has turned. JCI closed at 6,720 or all-time high, in the same day with the released of BoP. We see the condition reversing in 4Q21 and we expect way higher capital inflow in the rest of 2021. Besides, Indonesia has administered at least 218,286,093 doses of COVID vaccines so far. Assuming every person needs 2 doses, it is enough to have vaccinated about 40.3% of the population. The immersive progress of Covid-19 containment may attract more capital inflow in 4Q21. Thus, we are reviewing our current account deficit (CAD) estimate that may be better than our current estimate at 1.5% of GDP.