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ECONOMIC UPDATE – BoP Review Bitter sweet results


Bitter sweet results


4Q18 gave the only BoP surplus in 2018 but with worrying CAD

Bank Indonesia (BI) reported Indonesia’s Balance of Payment (BoP) surplus of USD 5.4 bn in 4Q18 but the FY18 figure still posted USD 7.1 bn deficit. Financial account helped to boost the BoP as BI recorded USD 15.7 bn suplus. However, the current account deficit (CAD) remained our top concern as came higher than our estimate (USD 8.4 bn) and Bloomberg consensus (USD 8.6 bn) figures.


Global slowing down was the main problem of CAD

Indonesia’s CAD in 4Q18 reached USD 9.1 bn (3.57% of GDP), bringing FY18 figure at USD 31.1 bn (2.98% of GDP). FY18 ratio to GDP was lower than 3% due to revision of lower CAD in 3Q18, becoming USD 8.6 bn or 3.24% of GDP (prev USD -8.8 bn or 3.37% of GDP). We see the-higher-than expected CAD was due to global slowing down which also led to lower commodities price.  It is denoted from non oil and gas export had negative growth of -1.4% YoY. Declining import growth (4Q18: 12.2% YoY; 3Q18: 20.1% YoY) became meaningless to cover overall trade balance. Although there was an improvement on oil and gas trade deficit from USD -3.5 bn in 3Q18 to USD -2.8 bn in 4Q18, non oil and gas thin surplus of only USD98 mn could not compensate at all. On the service side, tourism saw an improvement, yet it was still too small to cover overall CAD. Travel sector posted higher surplus of USD1.5 bn (3Q18: USD 1.3bn), making service sector posted only USD -1.6 bn deficit (3Q18: -2.0 bn). Primary income deficit was lower at USD -6.99 bn (3Q18: USD -7.9 bn) due to higher receipts growth at 80.7% YoY. Secondary income remained surplus with higher figure at USD 2.1 bn (3Q18: 1.8 bn).


Dovish Fed led to significant surplus

Financial account posted a significant surplus of USD 15.7 bn (3Q18: USD 3.9bn), leading the FY18 figure to USD 25.1 bn surplus. We believe declining global uncertainty due to more dovish Fed helped to bring portfolio investment to Indonesia as it recorded USD 10.4 bn surplus in 4Q18. There was significant foreign capital inflow to both government (USD 4.8 bn) and private (USD 6.6 bn) debt securities while equity capital only posted this surplus of USD 25 mn. Other investment also posted a surplus of USD 3.5 bn, the highest since 4Q14, due to loan disbursement of private sector. Meanwhile, direct investment posted only USD 1.99 bn or the weakest surplus since 4Q14.This is in line with BKPM data which denoted negative growth of -11.6% YoY of FDI realization growth in 4Q18.   


CAD at 2.8% GDP in FY 2019

The global slow down due to trade war and softening China’s expansion made us review our CAD target of 2.5% of GDP. The negative import growth of China in December has made Indonesia export to experience -4.6% YoY growth and made the trade balance remained high at USD 1.1 bn. If there is no settlement between US and China in the trade talk to lift up previous tariff, we see it may weaken Indonesia’s export performance and bring CAD to 2.8% of GDP. However, the number may change if there is an agreement between US and China to take out previous tariff.