Indonesia current account deficit narrows in Q3, likely to touch 2 pct of GDP this year

Current account deficit of Indonesia narrowed during the third quarter of this year, matching the lowest level seen since the second quarter of 2012. Further, the recovery in rupiah volatility has also grabbed a considerable amount of attention.

Current account (C/A) deficit narrowed to 1.8 percent of GDP in 3Q16. This matches the lowest amount of C/A deficit seen since 2Q12 (C/A deficit was also at 1.8 percent of GDP in 3Q15). The merchandise trade data is likely to continue recording positive monthly balances till the year-end (Oct trade data due on Tuesday), making it all but certain that C/A deficit will come in around 2 percent of GDP this year, DBS reported.

However, the 3Q16 balance of payments (BoP) data showed net foreign direct investment (FDI) surging to 2.1 percent of GDP in the period. This means that net FDI can finance the entire amount of C/A deficit, for the first time since 2011.

Back in mid-2013, Indonesia’s C/A deficit at 3.5 percent of GDP was unsustainable as only half of it was covered by net FDI. When the taper tantrums erupted then, Indonesia was among the worst hit economies.