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ECONOMIC UPDATE - BoP Review - First surplus since 2011



Higher than 2011 as well

In overall 2021, current account balance posted the first surplus after 11 years at USD3.33 bn (0.45% of GDP) reversing the deficit at USD4.43 bn in 2020 (-0.42% of GDP). Meanwhile in 2011, the current account surplus was lower at 0.19% of GDP. Thick trade surplus at USD43.8 bn was the source of current account surplus. Commodity prices hike drove strong export performance in 4Q21. However, service account remains deficit at USD14.8 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 4Q21

To be more specific on 4Q21, the balance of payments (BoP) recorded a slight deficit at USD0.84 bn. The thin deficit on BoP was supported by the drop of current account surplus from UUSD4.97 bn in 3Q21 to USD1.42 bn in 4Q21. It is true that the global commodity prices hike enabled Indonesia to improve trade performance, as Indonesia is a commodity-exporting country. However, Indonesia’s import on oil and gas jumped by 53% QoQ in 4Q21 while the export just grew by 15% QoQ. On the other hand, the capital and financial account brought BoP under pressure due to bond market outflows. However, the government was still able to maintain the forex reserve in Dec-21 was high at USD144.9 bn, equivalent to 8 months of imports and servicing government external debt or well above the international adequacy standard.


Commodity boom comes to an end

Indonesia experienced a commodity boom from natural resources like coal, CPO and nickel in 2021. However, 4Q21 may be the last era of commodity price hike under pandemic. In Dec-21, some Indonesia’s important commodity prices showed decreases such as coal (-3.22%), CPO (-4.72%) and oil (-7.48%) on monthly basis. As the international trade has been recovering, the net export has dropped by 19.3% QoQ as well in 4Q21.


Deficit on financial account

The financial account posted a deficit at USD2.42 bn (vs USD6.09 bn surplus in 3Q21). The deficit mostly came from the net outflow of portfolio investment, which was USD4.76 bn. Previously, it was still at surplus of USD1.19 bn in 3Q21. The turned table is understandable as the Fed’s tapering plan was announced in 4Q21. Besides, the continuing uncertainty in global financial market has led to adjustments in capital outflows for portfolio investment, especially in the form of domestic Government Securities (SBN), amidst the surplus in stock instruments. In addition, other investments recorded a deficit, partly induced by rising repayments on maturing external debts in the private sector.


Swing back to deficit in 2022

Indonesia already experienced the blessing in disguise of pandemic by recording a surplus on current account balance in 2021. However, Indonesia has to prepare for the reversal. Everything starts to go back to normal; recovery of international trade, domestic higher fuel consumption, etc. Besides, signs of acceleration from the Fed’s monetary tightening have already spurred outflows from the Indonesian bond market. BI sees the current account balance will swing back to deficit in the range of 1.1-1.9% of GDP in 2022. In line, we still maintain our estimate of CAD at 2.1% of GDP in 2022.