Indonesia’s balance of payments falls to deficit in Q2 amid slowing growth

The balance of payments deficit stood at US$2 billion in the second quarter, the latest Bank Indonesia (BI) data reveal. While the figure was an improvement on the $4.3 billion deficit recorded in the second quarter last year, it reversed the $2.41 billion surplus recorded in the previous quarter.

The balance of payments records the import and export of goods, services and capital and payments, including foreign aid.

Meanwhile, the current account deficit was recorded at $8.4 billion in the second quarter, equal to 3.04 percent of GDP, higher than the $7 billion booked over the same period last year.

Seasonality factors, such as high foreign exchange demand for dividend repatriation and the government’s debt interest payments, usually translate into a wider current account deficit in the second quarter compared with other quarters, according to the central bank.

BI governor Perry Warjiyo said the wider current account deficit, which was larger than the estimate of around 2.9 percent of GDP, could be attributed to lower-than expected economic growth in the second quarter.

“In the recent board of governor’s meeting we projected that the GDP in the second quarter would expand at a relatively similar pace to the first quarter,” said Perry in Jakarta on Friday. “The GDP expanded by 5.05 percent [in the second quarter], which was lower than we previously expected, and that is why the current account deficit was slightly higher.”

The second quarter GDP expansion was slightly lower than the 5.07 percent expansion recorded in this year’s first three months.

Perry, however, expressed confidence that the deficit would narrow to around 2.8 percent of GDP by the end of this year, which would be an improvement on the 2.98 percent deficit booked last year.

“We are optimistic that the surplus in the capital and financial accounts will be able to finance the current account deficit as highlighted by the foreign exchange reserve level that improved to $125.9 billion [in July], which signaled that the surplus in the capital and financial accounts will be able to cover the deficit in the current account,” said Perry.