Indonesia's Current Account Deficit in 2024 Widens Fourfold

JAKARTA, KOMPAS – Indonesia's current account balance in 2024 again recorded a deficit that widened four times compared to the previous year. This widening deficit has an impact on external resilience and is reflected in the movement of the rupiah exchange rate.

Based on the 2024 Indonesian Balance of Payments (NPI) data, the current account deficit was recorded at US$8.85 billion or equivalent to 0.6 percent of Gross Domestic Product (GDP). This figure has increased fourfold compared to the 2023 period, which recorded a deficit of US$2.04 billion or 0.1 percent of GDP.

The widening current account deficit was mainly influenced by the shrinking surplus in the goods trade balance. In 2024, Indonesia's goods trade balance surplus was recorded at US$39.92 billion, down 13.7 percent compared to last year.

Still referring to the 2024 NPI, the shrinking surplus in the goods trade balance was caused by an increase in exports that was not as high as imports. Export performance increased in line with rising global commodity prices amid declining demand from major trading partner countries, while the increase in imports was influenced by export needs and domestic demand.

Furthermore, the current account deficit is also driven by the increasing deficit in the services and primary income balances. The services balance deficit in 2024 is expected to increase by 5.6 percent annually to US$18.66 billion, while the primary income deficit is expected to increase by 0.21 percent annually to US$36.09 billion.

Chief Economist of PT Bank Central Asia Tbk (BCA) David Sumual said, the current account deficit does have a close correlation with the fluctuation of the rupiah exchange rate. This means that pressure on the current account will also be reflected in the movement of the rupiah.

"So far, the current account deficit can be said to be still under control. Usually, investors set the current account deficit at three percent of GDP. Although the current account deficit is now increasing, it has not reached that point," he said when contacted from Jakarta, Thursday (20/2/2025).

In line with the widening current account deficit, David estimates that the rupiah exchange rate will remain relatively stable in the range of Rp16,000 per US dollar. At the close of the Jakarta Interbank Spot Dollar Rate (Jisdor) market this Thursday, the rupiah closed at Rp16,344 per US dollar or depreciated 1.15 percent compared to the closing at the end of 2024.

Looking ahead, the impact of Trump's tariff policy makes (trade) expectations for the first half of 2025 still negative. This global trade full of uncertainty will also certainly affect Indonesia. On the other hand, from the commodity side, there are no new catalysts, except for coffee, chocolate, and CPO.

David added that the shrinking trade surplus that widened the current account deficit was inseparable from the factor of global commodity price normalization. Although the prices of coffee, chocolate, and crude palm oil (CPO) commodities rose, the prices of coal and other minerals fell.

"Going forward, the impact of Trump's tariff policy makes (trade) expectations for the first half of 2025 still negative. This global trade full of uncertainty will also certainly affect Indonesia. On the other hand, from the commodity side, there are no new catalysts, except for coffee, chocolate, and CPO," he added.

In the last decade, Indonesia's current account balance has only recorded a surplus twice, namely in 2021 and 2022. The deepest recorded current account deficit occurred in 2018 at US$31.1 billion or 2.98 percent of GDP and in 2019 at US$30.4 billion or 2.72 percent of GDP.

According to David, the current account deficit that has gradually occurred in the last decade is mainly caused by the deficit in the services balance. The service sectors that contributed to the deficit include insurance and pension fund services, as well as shipping services.

Referring to the 2024 NPI data, transportation services recorded a deficit of US$8.83 billion or an increase of 1.15 percent annually. On the other hand, insurance and pension fund services recorded a deficit of US$2.1 billion or an increase of 14.48 percent annually.

Contacted separately, Bank Permata Chief Economist Josua Pardede said that a higher surplus of goods and increased non-oil and gas exports drove improvements in the current account deficit in Q4-2024. However, the primary income deficit widened due to higher returns from direct and portfolio investment.

“We estimate the 2025 current account deficit will widen to 1.18 percent of GDP, driven by strong domestic demand and a pro-growth agenda that boosts imports. Meanwhile, exports face challenges from ‘Trade War 2.0’. However, the deficit remains manageable compared to pre-pandemic levels,” he said.

The estimate is in line with the International Monetary Fund (IMF) report entitled "World Economic Outlook: Policy Pivot, Rising Threats" which was released in October 2024. The IMF estimates that Indonesia's current account deficit will widen by 2 percent in 2025, and to 1.4 percent in 2029.

Josua added that the financial transaction balance in 2025 is expected to remain positive, supported by direct investment and other investments. However, portfolio investment could post a deficit amid rising global uncertainty.

We underline the importance of monetary policy in maintaining Rupiah stability and suppressing imported inflation. We maintain our end-of-year forecast of a BI rate of 5.75 percent, foreign exchange reserves of $152-156 billion, and a rupiah in the range of $16,200-16,600 per US dollar.

Overall, the NPI performance in 2025 will record a deficit leading to a moderate decline in foreign exchange reserves by the end of the year. This could limit the room for lowering the benchmark interest rate due to global uncertainty reducing capital inflows.

"We underline the importance of monetary policy in maintaining Rupiah stability and suppressing imported inflation. We maintain the forecast for the end of the year, BI rate of 5.75 percent, foreign exchange reserves of 152-156 billion US dollars, and the rupiah in the range of Rp 16,200-16,600 per US dollar," he said.

Head of the Communication Department of Bank Indonesia (BI) Ramdan Denny Prakoso said that the development of the NPI shows the resilience of the external sector which remains strong amidst the ongoing uncertainty of the global financial market. Overall, the 2024 NPI recorded a surplus of 7.2 billion US dollars, up from last year's surplus of 6.3 billion US dollars.

The increase in surplus was mainly driven by better capital and financial transaction performance. Meanwhile, the NPI in 2025 is predicted to remain healthy supported by a continued capital and financial transaction surplus, as well as a current account deficit maintained in the range of 0.5-1.3 percent of GDP.

"Moving forward, Bank Indonesia will continue to monitor the dynamics of the global economy that can affect the outlook for the BOP and continue to strengthen the policy mix response supported by close policy synergy with the government and related authorities, in order to strengthen the resilience of the external sector," said Ramdan in an official statement.