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ECONOMIC UPDATE - BoP review - Macroeconomic buttress



Thicker current account surplus

Current account balance posted a higher surplus at USD4.38 bn in 3Q22 (1.28% of GDP). It was higher than consensus at USD3.25 bn so it brings positive sentiment towards market. This is 8.76% higher from previous quarter due to the solid trade performance. Again, thanks to the commodity prices hike. The thick trade surplus at USD17.5 bn in 3Q22 recorded the all-time high level. On the contrary, the service account achieved all-time low of deficit at USD5.27 bn as the international travel restrictions loosened. From the balance of payments (BoP) itself, the serious plunge on financial account dragged the BoP to deficit. 


BoP reading in 3Q22

Unlike previous quarter, the BoP recorded a deficit of USD1.3 bn, contrasting the previous BoP at surplus of USD2.39 bn in 2Q22. The deficit occurred due to the significant deficit on financial account at USD6.07 bn (-80.9% QoQ). This indicates that the global market volatility brings investor to invest on safe haven rather than developing countries. In 3Q22, exchange rate was at stake by breaching Rp15,000/USD for the first time this year. In line, the position of foreign reserves all over in 3Q22 slipped consistently where in Sep-22 it stood at USD130.8 bn, equivalent to 5.7 months of imports and servicing government external debt, which is still above the international adequacy standard.


Financial account dives deeper into deficit

The financial account posted a deeper deficit at USD6.07 bn (vs USD1.16 bn in 2Q22). This is understandable since the global financial sector is disrupted by the global political turmoil and tightened monetary policy. Until Nov, 15th 2022, portfolio investment recorded a net outflow of USD0.3 bn, showing the persistent pressures on foreign capital flows are. The portfolio investment deteriorated to deficit of USD3.11 bn (-88.7% QoQ). It was worsened by the thicker deficit of other investment component at USD5.75 bn (-28.2% QoQ) due to an increase in private assets, especially those related to business operations. Direct investment is the only buffer for financial account where it still stayed at positive territory at USD2.78 bn (-18.3% QoQ). Under the tightened monetary policy, we expect direct investment will face difficulties to grow, as investors will face higher cost of financing the new investment. 


G20 Presidency allures more investment to come

However, all eyes are on Indonesia now. With the G20 Summit, Indonesia showcases its strength and vast opportunities it can offer to the world. Reaping the opportunity from electric-vehicle (EV) supply chains as current global interest is one of them. Indonesia owns a fifth of global reserves of nickel, used in batteries for EV. It makes Indonesia as a crucial player. By banning the export of raw materials, Indonesia forces global firms to bring direct investment to Indonesia. As the result, over USD20 bn of investment has been secured so far. This may help for the BoP to go back to its surplus territory in the future.


Buttress for FY 2022

We are optimistic that the current account surplus will remain for FY22 due to the elevated commodity price. The enormous trade surplus at USD5.7 bn in Oct-22 still showed that Indonesia remains advantaged with the high commodity prices in 4Q22. BI expects the current account surplus in the 0.4-1.2% of GDP range. With current development, we revised up our estimate of current account surplus from 0.2% of GDP to 0.8% of GDP for FY 2022. With the solid surplus on current account balance, it provides the buttress for Indonesia macroeconomic fundamentals before we face the more vivid commodity prices moderation in 2023.