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ECONOMIC UPDATE - BoP review - BoP surplus increases despite small trade surplus



BoP performances improve in 1Q23 

Indonesia's balance of payments (BoP) recorded a surplus of USD6.5 bn, higher than the previous surplus of USD4.7 bn in 4Q22. This positive performance was mainly driven by the current account surplus and was also supported by a surplus in the capital and financial accounts. As a result, the position of foreign exchange reserves rose from USD137.2 bn in Dec-22 to USD145.2 bn at end of Mar-23. This amount is equivalent to 6.2 months of import financing and payment of government foreign debt, surpassing the international adequacy standard of 3 months of import. We think the forex reserves position is sufficient to support a relatively stable rupiah in 2023. However, the government should anticipate a higher interest payment on external debt due to the Fed Fund Rate (FFR) hike. The Fed raised its rate to 5.00%–5.25% in May, the highest since August 2007.


The thin trade surplus weighed on current account performance

The current account recorded a surplus of USD3.0 bn (0.9% of GDP), which was lower than the previous quarter's surplus of USD4.2 bn (1.3% of GDP). The decline in current account performance was primarily driven by a decrease in the trade balance surplus, which amounted to USD14.7 bn in 1Q23 compared to USD17.0 bn in 4Q22. Additionally, the surplus in the secondary income account fell from USD1.9 bn in 4Q22 to USD1.5 bn in 1Q23. On the other hand, there was an improvement in the deficit of the primary income account from -USD9.2 bn in 4Q22 to -USD8.6 bn in 1Q23. Furthermore, the deficit of the services accounts also improved from -USD5.2 bn in 4Q22 to -USD4.6 bn in 1Q23. The government should anticipate the further narrowed trade surplus due to the normalization of commodity prices and global economic slowdown. In April-23, the price of export commodities such as CPO and coal dropped significantly by -40% YoY and -37% YoY to USD3,937/MT and USD185/ton, respectively.


Portfolio investment fuels capital and financial account improvement

The capital and financial account posted a surplus of USD3.4 bn in 1Q23 (1.0% of GDP), showing a significant increase from the previous quarter's surplus of USD0.3 bn (0.1% of GDP). This improvement came from direct investment and portfolio investment. The net inflow of direct investment reached USD3.4 bn in 1Q23, slightly higher than the previous quarter's figure of USD3.2 bn. Meanwhile, the net flow of portfolio investment reversed its course, shifting from a deficit of -USD1.7 bn in 4Q22 to a surplus of USD2.3 bn in 1Q23. On the other hand, the deficit of other investments deepened from -USD1.5 bn in 4Q22 to -USD3.2 bn in 1Q23. We think the improvement in capital and financial accounts is also supported by an attractive return on financial assets and solid economic performance such as manageable inflation and positive economic growth.


Another BOP surplus seen in 2Q23

We expect that Indonesia's balance of payments will continue to show a surplus trend in 2Q23. This positive outlook is primarily driven by the trade surplus observed in April and May. Furthermore, we expect to see an improvement in the capital and financial account during this period, as reflected by a net inflow capital into the stock and bond markets. Additionally, the China’s reopening has led to an increase in the number of tourists, which has positively impacted the services account.