PT Bank Central Asia Tbk 20th Grand Indonesia, BCA Tower Jl. M.H Thamrin No. 1 Jakarta, Indonesia Ph : (62-21) 2358-8000
`myb
BoP: Coal, palm and metals save the day
Executive Summary:
Indonesia’s balance of payments (BoP) registered a large surplus of USD 10.7 Bn on Q3-2021.
This was primarily driven by a significant current account surplus as already high commodity prices were further turbocharged by a global energy crisis.
Deteriorating market sentiment however, fuelled by growing scrutiny of central banks’ monetary tightening schedules as inflation continues to spiral, poses a significant threat to Indonesia’s financial account.
With such challenges facing the financial account then, coal, palm and metals must pick up the slack where markets remain wary. Even if commodity prices were to somewhat normalize in the coming months, surpluses should still be more than sufficient to guard against the capital outflow risks outlined above.
Indonesia’s balance of payments (BoP) recorded a massive surplus of USD 10.7 Bn in Q3-2021, a high even amidst an era of pandemic-distorted external figures (Chart 1).
The biggest driver here of course, is the current account, which recorded a significant USD 4.5 Bn surplus in the third quarter. High commodity prices, that steady cement of Indonesia’s post-pandemic trade balance, were further turbocharged by a global energy crisis, and the cascading ripples further disrupting the world’s already stretched supply chains. The result was a staggering trade goods balance amounting to USD 15.0 Bn, more than enough to offset Indonesia’s bulging post- pandemic service deficits (Chart 2).
The financial account, on the other hand, was boosted by a significant transfusion of liquidity from the IMF, in the form of increased SDR allocations earlier in August. This augmented existing direct and portfolio inflows, both of which actually declined relative to Q2, with social restrictions and the Delta-driven surge in Q3 severely curtailing FDI, and renewed market anxieties over stagflationary forces and central bank tightening likely limiting the amount of portfolio inflows. The dip in FDI fortunately, is likely to be temporary and may be reversed as restrictions are eased and economic activity rebounds in Q4. The same however, may not necessarily hold for portfolio inflows.
Indeed, the past few weeks have only seen a further deterioration of market sentiment as a continuing inflationary spiral across major economies puts central banks’ monetary tightening schedules under greater scrutiny. Even the timeline of tapering by the Fed, which had gradually settled into a mutual agreement of sorts between
markets and policymakers over the past few months, has now regained some measure of unpredictability, as spiraling prices wear down policymakers’ delicately choreographed plans for an orderly monetary retreat.
The significant portfolio outflows observed over the past few weeks highlights this heightened uncertainty gripping markets, and is likely to cast a cloud over the BoP over the next few months (Chart 3). Absent another form of monetary manna akin to the IMF’s largesse in August, the financial account’s outlook for the next quarter appears to be clouded over by a decidedly less heavenly light.
With such challenges facing the financial account then, much hinges on the trade balance in the coming months.
Coal, palm and metals must pick up the slack where markets remain wary. For now, high commodity prices remain the BoP’s best defense against the risk of further capital outflows.
There is certainly a long-term risk with regards to a potential Chinese economic slowdown, with the recent implosion of Evergrande potentially pointing the way towards a new era of structurally lower growth as China’s debt-fuelled growth model hits its limits. In the shorter term however, 2022’s political significance to the Chinese government means that we may not see the fruits of such a slowdown until 2023. And as mentioned in our previous report (see “BI Policy: Fragile no more”), even should the current highs in commodity prices normalize somewhat in the coming months, we should still see surpluses in the territory of USD 2-4 Bn in the coming months, more than sufficient to guard against the capital outflow risks outlined above. All in all then, we project an overall current account surplus of 0.4% for the year, and a BoP surplus of USD 3.4 Bn for Q4-2021.
Quarterly Economic & Finance Briefing
Economic, Banking & Industry Research of BCA Group
Note issued: November 22nd, 2021
I N D O N E S I A E C O N O M I C U P D A T E
PT Bank Central Asia Tbk 20th Grand Indonesia, BCA Tower Jl. M.H Thamrin No. 1 Jakarta, Indonesia Ph : (62-21) 2358-8000
Chart 1. Massive trade surpluses, bolstered by an infusion of funds from the IMF, helped boost Indonesia’s balance of payments in Q3-2021
Chart 2. The surge in Indonesia’s trade goods surplus is more than enough to offset the continuing deterioration of its service deficit
-8 -6 -4 -2 0 2 4 6 8
Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21
Source: BI, BCA Research Team
0.5
1.3 1.5 0.4 3.6
% of GDP
Current Account FDI Portfolio Investment Other Investment Balance of Payments
15,027
-3,634 -4,000 -3,500 -3,000 -2,500 -2,000 -1,500 -1,000 -500 0
-4,000 -2,000 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000
Goods Balance (lhs) Services Balance (rhs)
USD Mn USD Mn
Source: BI
2 2 N O V E M B E R 2 0 2 1
I N D O N E S I A E C O N O M I C U P D A T E
3 Table 1. Balance of Payments (current USD Million)
Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 2018 2019 2020
CURRENT ACCOUNT 1,003 847 -1,075 -1,965 4,474 -30,633 -30,279 -4,487
(as % of GDP) 0.38 0.31 -0.38 -0.68 1.49 -2.94 -2.71 -0.42
A. Goods 9,791 9,969 7,628 8,337 15,027 -228 3,508 28,218
- Non-Oil/Gas 9,441 11,332 9,976 11,581 18,120 11,186 11,965 29,871
- Oil/Gas -715 -1,233 -2,269 -3,144 -2,889 -11,405 -10,319 -5,386
B. Services -2,761 -3,108 -3,389 -3,713 -3,634 -6,485 -7,641 -9,726
C. Income -7,399 -7,442 -6,745 -8,054 -8,337 -30,815 -33,775 -28,911
D. Current Transfers 1,371 1,428 1,432 1,465 1,417 6,895 7,629 5,932
CAPITAL TRANSACTIONS 6.72 23.79 2.20 5.00 9.49 97.16 39.06 36.91
FINANCIAL TRANSACTIONS 888 -995 5,699 1,638 6,087 25,122 36,564 7,858
A. Direct Investment 979 4,301 4,381 5,313 3,281 12,511 20,531 14,093
B. Portfolio Investment -1,984 1,952 4,904 3,990 1,144 9,312 21,990 3,369
C. Derivative Instruments 18.02 201.46 110.06 23.75 172.24 33.61 186.40 17.73
D. Other Investment 1,876 -7,450 -3,696 -7,688 1,490 3,266 -6,144 -9,621
NET ERRORS AND OMISSIONS 154.94 -32.18 -561.69 -128.42 119.33 -1,717.35 -1,647.91 -811.02 BALANCE OF PAYMENT
(= change in BI international reserves)
2,053 -156 4,065 -450 10,690 -7,131 4,676 2,597
Chart 3. Indonesia recorded significant outflows as markets turned increasingly jittery on concerns of swifter monetary tightening by central banks
14253 12500 13000 13500 14000 14500 15000 15500 16000 16500 17000 -10
-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1
Cumulative foreign flows from 02-Mar-2020 (USD Bn)
Equities (lhs) Bonds (lhs) USD-IDR (rhs) Source: Bloomberg (last update: 22 Nov 2021)
-5,906 -167
2 2 N O V E M B E R 2 0 2 1
I N D O N E S I A E C O N O M I C U P D A T E
4
Indonesia – Economic Indicators Projection
** Estimation of Rupiah’s fundamental exchange rate
2016 2017 2018 2019 2020 2021E
Gross Domestic Product (% YoY) GDP per Capita (US$)
Consumer Price Index Inflation (% YoY) BI 7 day Repo Rate (%)
USD/IDR Exchange Rate (end of year)**
Trade Balance (US$ billion) Current Account Balance (% GDP)
5.0 3605
3.0 4.75 13,473
8.8 -1.8
5.1 3877
3.6 4.25 13,433
11.8 -1.6
5.2 3927
3.1 6.00 14,390
-8.5 -3.0
5.0 4175
2.7 5.00 13,866
-3.2 -2.7
-2.1 3912
1.7 3.75 14.050
21.7 -0.4
4.0 4055
2.3 3.50 14.215
32.0 0.4
PT Bank Central Asia Tbk
Economic, Banking & Industry Research of BCA Group 20th Grand Indonesia, Menara BCA
Jl. M.H Thamrin No. 1, Jakarta 10310, Indonesia Ph : (62-21) 2358-8000 Fax : (62-21) 2358-8343
DISCLAIMER
This report is for information only, and is not intended as an offer or solicitation with respect to the purchase or sale of a security. We deem that the information contained in this report has been taken from sources which we deem reliable. However, we do not guarantee their accuracy, and any such information may be incomplete or condensed.
None of PT. Bank Central Asia Tbk, and/or its affiliated companies and/or their respective employees and/or agents makes any representation or warranty (express or implied) or accepts any responsibility or liability as to, or in relation to, the accuracy or completeness of the information and opinions contained in this report or as to any information contained in this report or any other such information or opinions remaining unchanged after the issue thereof. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. Opinion expressed is the analysts’ current personal views as of the date appearing on this material only, and subject to change without notice. It is intended for the use by recipient only and may not be reproduced or copied/photocopied or duplicated or made available in any form, by any means, or redistributed to others without written permission of PT Bank Central Asia Tbk.
All opinions and estimates included in this report are based on certain assumptions. Actual results may differ materially. In considering any investments you should make your own independent assessment and seek your own professional financial and legal advice. For further information please contact: (62-21) 2358 8000, Ext: 20364 or fax to: (62-21) 2358 8343 or email: ahmad_rizki@bca.co.id
Economic, Banking & Industry Research Team
David E. Sumual Chief Economist [email protected] +6221 2358 8000 Ext: 1051352
Agus Salim Hardjodinoto Barra Kukuh Mamia Victor George Petrus Matindas
Industry Analyst Economist / Analyst Economist / Analyst
[email protected] [email protected] [email protected]
+6221 2358 8000 Ext: 1005314 +6221 2358 8000 Ext: 1053819 +6221 2358 8000 Ext: 1058408
Gabriella Yolivia Derrick Gozal Livia Angelica Thamsir
Economist / Analyst Economist / Analyst Economist / Analyst
[email protected] [email protected] [email protected]
+6221 2358 8000 Ext: 1063933 +6221 2358 8000 Ext: 1066722 +6221 2358 8000 Ext: 1069933
Keely Julia Hasim Ahmad Aprilian Rizki Arief Darmawan
Economist / Analyst Research Assistant Research Assistant
[email protected] [email protected] [email protected]
+6221 2358 8000 Ext: 1069933 +6221 2358 8000 Ext: 20378 +6221 2358 8000 Ext: 20364
