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ECONOMIC UPDATE - BoP Review Indonesia’s balance of payments surplus continues



Narrowed BoP surplus

Bank Indonesia (BI) recorded a balance of payments (BoP) surplus at USD4 bn for FY22. However, the BoP surplus decreased significantly from USD 13.5 bn in FY21. Furthermore, the current account surplus for FY22 was recorded at USD13.2 bn (1% of GDP), higher than our estimation at 0.8% of GDP.  This figure also increased from the previous year at USD3.4 bn (0.3% of GDP). On the other hand, the capital and financial account recorded deficit at USD-8.9 bn dropped from USD12.5 bn in 2021.


BoP reading in 4Q22

To be more specific on 4Q22, the Balance of Payments (BoP) recorded a surplus at USD4.7 bn, which jumped significantly from -USD1.3 bn in 3Q22. The surplus in BoP supported by capital and financial account improvement from -USD5.49 bn in 3Q22 to USD-0.49 bn in 4Q22. The capital and financial account was primarily supported by direct investment, in line with investor optimism in the promising economic outlook and the conducive domestic investment climate.  Meanwhile, the current account posted a surplus at USD4.3 bn in the last quarter of 2022. Current account performance was mainly affected by high export commodity prices.  In addition, the oil and gas trade deficit narrowed on the downward global oil price trend, amidst higher domestic fuel demand during Christmas and New Year festive period.


The current account surplus slightly decreases

The current account recorded a USD4.3 bn surplus (1.3% of GDP) in 4Q22, lower than the previous quarter at USD4.5 bn (1.3% of GDP).  On a quarterly basis, a decrease in current account performance was mainly propelled by a decrease in the surplus of non-oil and gas trade balance (USD22.4 bn in 4Q22 vs USD24.1 in 3Q22). Besides, the deficit of primary income account deepened from -USD9.1 bn in 3Q22 to -USD9.4 bn in 4Q22. However, the surplus in the secondary income account grew from USD1.4 bn in 3Q22 to USD1.9 bn in 4Q22. Followed by the improvement of services account from -USD5.4 bn in 3Q22 to -USD5.2 bn in 4Q22.


Improvement of capital and financial account

The capital and financial account posted -USD0.49 bn in 4Q22, better than the previous quarter at -USD5.49 bn. The improvement came from direct investment, portfolio investment, and other investments. The net inflow of direct investment reached USD3.6 bn in 4Q22, slightly higher than the previous quarter at USD3.4 bn. Furthermore, the net outflow of portfolio investment fell from USD3.1 bn in 3Q22 to USD2.3 bn in 4Q22. Besides, the deficit of other investments decreased from -USD5.9 bn in 3Q22 to -USD1.8 bn in 4Q22.


Swing back to deficit in 2023

Indonesia already experienced the commodities boom by recording a high surplus on the current account balance in 2022. However, Indonesia has to prepare for the reversal. Besides, the global and domestic economic growth predicted slowdown in 2023 would weigh on sentiment. Also, the potential of Fed’s monetary tightening in 2023 can trigger capital outflows from the Indonesian bond market. On the other hand, China's reopening and the downstream commodities policy would provide some support, in our view. We maintain our estimate of current account to GDP in 2023 at -0.5%, lower than BI estimation in the range of -0.4% to 0.4% of GDP in 2023.