Bank Indonesia Expects to See an Improving Current Account in Q1-2015
The central bank of Indonesia (Bank Indonesia) expects that the country’s current account deficit has eased to 1.6 percent of gross domestic product (GDP) in the first quarter of 2015. This estimate is lower than the institution’s initial forecast of 2 percent of GDP. Main reason for this more optimistic view is that Indonesia experienced a USD $2.43 billion trade surplus in the first quarter of 2015. Particularly the unexpectedly-wide USD $1.13 billion trade surplus in March will manage to ease pressures on the country’s current account.
However, in the second quarter of the year the current account deficit is expected to widen, particularly as the country needs a large portion of imports for government infrastructure projects and due to the repatriation of dividends or assets abroad. As such, considering full-year 2015, Bank Indonesia sees the current account deficit at about 2.8 to 3.0 percent of GDP, flat from the figure in the previous year.
In 2014 Indonesia’s current account deficit amounted to USD $26.2 billion, equivalent to 2.95 percent of GDP from a (revised) deficit of USD $29.1 billion (3.18 percent of GDP) in 2013.
A current account, one of the two components of the balance of payments, is a country’s widest measurement of foreign exchange flows, including trade, services, interest payments and remittances. A positive current account balance signals that a country is a net lender to the rest of the world, whereas a negative current account balance signals that a country is a net borrower from the rest of the world. Since 2011 Indonesia has had to cope with a negative current account balance, indicating a financial weakness, hence making the country highly vulnerable to capital outflows in times of economic turmoil.