Indonesia: Current Account deficit forecast to widen in 2021 – UOB

Economist at UOB Group Enrico Tanuwidjaja and Haris Handy assess the latest current account results in Indonesia.

Key Quotes

“Indonesia posted its second straight quarter of current account surplus in the last quarter of 2020, bringing the full year current account deficit (CAD) to -USD4.7bn or -0.5% of gross domestic product (GDP); vs. -2.7% of GDP in 2019.”

“The capital and financial account, which records trade in assets between Indonesians and foreign counterparts, remained in a surplus albeit only one fifth of 2019’s achievement. Nonetheless, direct and portfolio investment remained in surplus territory in line with investors’ optimism towards the domestic economic recovery and lower uncertainty in the global financial markets, especially in the second half of 2020.”

“Overall, narrower CAD and capital and financial account surpluses led Indonesia to register +USD2.6bn of surplus in its Balance of Payment (BoP) in 2020 vis-à-vis +USD4.7bn surplus in the previous year.”

“For 2021, we expect CAD to widen from the 2020’s position, primarily underpinned by higher primary income deficit from direct and portfolio investment return; in line with delayed repayment of 2020 dividend and economic recovery. Nevertheless, the pace of dividend repatriation might not be as fast as before, given various incentives from the government for investors that reinvest their funds back in Indonesia.”

“Overall, the pace of wider CAD remains measured. We expect CAD to widen to -1.6% of GDP this year (from previous forecast of -2.0%).”

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