ECONOMIC UPDATE - BoP review - CAD improves on trade surplus, but widening risks loom

1Q25: BoP turned to deficit, yet forex reserves improved

Bank Indonesia (BI) reported a balance of payments (BoP) deficit of USD0.8 bn in 1Q25, a reversal from the USD7.8 bn surplus in 4Q24. The decline was mainly driven by deficits in the current account (CA) and the capital and financial account (FA). Despite the BoP deficit, forex reserves rose to USD157.1 bn in 1Q25 from USD155.7 bn in 4Q24, supported by global bond issuance. However, forex reserves fell sharply to USD152.5 bn in Apr-25, the lowest level since Nov-23. This decline was due to government external debt repayments and BI’s intervention to stabilize the rupiah amid continued global financial market uncertainty. In April, the rupiah depreciated by 0.25% MoM to Rp16,601/USD. However, easing trade tensions between the US and China in May led to capital inflows and a rupiah rebound. As of May 21 2025, the rupiah had appreciated 1.24% MtD to Rp16,395/USD. Looking ahead, we expect the average rupiah exchange rate in 2025 to be around Rp16,500/USD. Key global risks include geopolitical tensions, US-China trade developments, and the US Federal Reserve’s policy stance. Domestically, factors such as fiscal policy, BI rate direction, purchasing power, and the Danantara issue will also influence the rupiah’s performance.

 

CAD: supported by trade surplus for now, but widening risks loom

The current account deficit (CAD) narrowed to –USD0.2 bn (–0.1% of GDP) in 1Q25, an improvement from –USD1.1 bn (–0.3% of GDP) in 4Q24. This marks the strongest current account position since 1Q23. The improvement was mainly supported by a higher trade surplus, which rose to USD13.1 bn in 1Q25 from USD11.3 bn in 4Q24, driven by a decline in import growth amid subdued domestic purchasing power. However, the service account deficit widened to -USD5.4 bn in 1Q25 from -USD5.1 bn in 4Q24, largely due to increased outbound travel by domestic tourists. The primary income account deficit also rose to -USD9.4 bn in 1Q25 from -USD9.0 bn in 4Q24, reflecting higher government bond (SBN) coupon payments. Meanwhile, the secondary income surplus slightly decreased to USD1.6 bn in 1Q25 from USD1.7 bn in 4Q24, attributed to lower government grant revenues. Looking ahead, imports are expected to rise, supported by: (1) deregulation of import restrictions; (2) higher imports from the U.S. as part of reciprocal tariff negotiations; and (3) increased imports from China driven by oversupply and diverted trade flows from U.S. tariffs. In contrast, exports are projected to decelerate due to moderating commodity prices and weakening global demand. Considering these dynamics, we expect the CAD to widen to 1.0% of GDP in 2025.

 

FA slips into deficit; but inflows may regain momentum ahead

The capital and financial account (FA) recorded a deficit of –USD0.3 bn in 1Q25, a sharp reversal from the USD8.5 bn surplus in 4Q24. This was mainly driven by a –USD4.2 bn deficit in the other investment account, compared to a USD8.9 bn surplus previously, due to increased placement of residents’ assets in foreign financial instruments. On the other hand, portfolio investment returned to a USD1.0 bn surplus from a –USD2.5 bn deficit, supported by inflows into SRBI and government bonds. Meanwhile, direct investment surplus declined to USD2.6 bn from USD3.2 bn, in line with the gross fixed capital (PMTB) deceleration. Looking ahead, we expect the FA return to surplus, despite BI’s recent 25 bps rate cut to 5.50%. Easing U.S.–China trade tensions and potential capital shift from the U.S.—driven by slower growth, higher debt, and a weaker credit rating—could support portfolio inflows to emerging markets. Additionally, BI may cut further to 5.25% in 4Q25 if GDP growth remains weak and the fed begin to lower its rate.