Bank Indonesia: Current Account Deficit at 1.8% of GDP in 2017
Bank Indonesia (the central bank of Indonesia) is convinced that the nation's current account deficit (CAD) will not exceed 2 percent of gross domestic product (GDP) in 2017. In the second quarter of 2017 the CAD widened to 1.96 percent of GDP (or USD $5 billion), from 0.98 percent of GDP in the preceding quarter (or USD $2.4 billion).
Bank Indonesia Governor Agus Martowardojo said it is a seasonal phenomenon that the CAD widens in the second quarter of the year. Therefore, he remains optimistic that the CAD can be kept at around 1.8 percent in full-year 2017, flat from the figure recorded in the preceding year. Moreover, the Q2-2017 figure constitutes an improvement from 2.25 percent of GDP in the same quarter one year earlier.
The current account balance is the broadest measure of a nation's international trade, covering transactions in goods, services, factor income, as well as transfers. Thus, when a country posts a current account deficit (CAD) it implies the country is a net borrower from the rest of the world, hence needing capital or financial inflows to finance this deficit.
The widening CAD in Q2-2017 (compared to Q1-2017) was caused by a decrease in the non-oil & gas trade surplus. This decrease was attributed to a decline in non-oil & gas exports amid a high amount of non-oil & gas imports into Indonesia (both of raw materials and consumption goods), to meet domestic demand during the Ramadan and Idul Fitri celebrations.
Meanwhile, Indonesia's higher deficit in services was sourced from a descent surplus in travel services and a rise in the primary income account deficit due as dividend payments mounted in accordance with its seasonal pattern. On a positive note, the narrower oil & gas trade deficit (due to the falling price and volume of oil imports) had a positive impact on the current account balance.
Indonesia's balance of payments (BoP) recorded a USD $0.7 billion surplus in Q2-2017 on the back of the capital and financial surplus that outweighed the CAD. The BoP surplus led to an increase in official reserve assets from USD $121.8 billion at the end of Q1-2017 to USD $123.1 billion at the end of Q2-2017.
