Indonesia's Current Account Deficit May Moderate to 2.6% in 2014
A senior official at Indonesia's central bank (Bank Indonesia) stated that the country's current account deficit is expected to ease to 2.5 - 2.7 percent of Indonesia's gross domestic product (GDP) by 2014. In the second quarter of 2013, the account deficit reached USD $9.8 billion or 4.4 percent of GDP in Q2-2013, an alarmingly high figure that has caused much concern among the investor community. This deficit is particularly brought on by a large deficit in the country's oil & gas sector in combination with strong domestic demand for imports.
Trade numbers in August already showed a positive sign when Statistics Indonesia announced that Indonesia had recorded its first trade surplus in five months. In August, Indonesia posted a USD $132.4 million surplus, which was caused by significantly falling imports. Imports in August declined by 25.5 percent, while exports fell by 12.8 percent compared to the previous month.
However, the country's accumulated trade deficit is still high at USD $5.54 billion in the first eight months of 2013, caused by a trade deficit in the country's oil & gas sector of USD $8.52 billion, while there is a trade surplus in the non oil & gas sector of USD $2.98 billion.
Indonesia's current account deficit is actually also a side-effect of the country's robust economic growth in recent years. As domestic industries are still largely undeveloped or underdeveloped, imports of both capital goods and other products are needed to meet domestic demand of industries and consumers.
The ongoing current account deficit is also a factor behind the depreciation of the rupiah exchange rate against the US dollar. This has resulted in imported inflation as imported goods have become more expensive. On the other hand, these expensive imports are also expected to reduce the current account deficit in the months ahead. In August 2013, imports fell by a massive 25.5 percent from the previous month.
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