Bank Indonesia Sees Widening Current Account Deficit in 2017
The central bank of Indonesia (Bank Indonesia) expects the nation's current account deficit to widen to 2.4 percent of gross domestic product (GDP) in 2017 due to expectation of rising imports in Indonesia this year. These rising imports come on the back of growing investment realization in Southeast Asia's largest economy. This projection is significantly higher compared to the estimated USD $17 billion, or 1.8 percent of GDP, current account deficit in 2016.
Last year, Indonesia's current account deficit is estimated to have improved from the USD $17.8 billion (2.06 percent of GDP) current account deficit in 2015. The improvement is due to rising prices of Indonesia's export products (especially higher commodity prices such as coal and crude palm oil). This also managed to give rise to the nation's structural trade surplus throughout 2016. In full-year 2016 Indonesia posted a USD $8.8 billion trade surplus, up from a USD $7.7 billion trade surplus in the preceding year.
However, despite the rising trade surplus, in full-year 2016 Indonesia's exports fell 3.95 percent (y/y) to USD $144.4 billion, while imports fell a bit harder at 4.94 percent (y/y) to USD $135.7 billion.
The improving current account deficit is also behind Indonesia's improving balance of payments (BoP). The BoP covers foreign direct investment (FDI), portfolio investments, financial derivatives and other investments. According to Bank Indonesia, the BoP will show a USD $11 billion surplus in 2016. Rising foreign exchange reserves were also behind Indonesia's improving BoP. Between end-2015 and end-2016 Indonesia's foreign exchange assets rose USD $10.5 billion from USD $105.9 billion to USD $116.4 billion.
However, Bank Indonesia Governor Agus Martowardojo sees two challenges: (1) the income balance deficit and (2) the service account deficit. Both deficits, USD $30 billion and USD $6 billion, respectively, are the main reasons why Indonesia has to cope with a structural current account deficit.