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Anticipating the impacts of returning twin deficits to Indonesia
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Europe is flocking to Indonesia as coal has become a valued commodity after Russia cut off its gas supplies.
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ndonesia, being one of the world's largest producers and exporters of natural resource commodities, has been positively impacted by the global commodity windfall in the past two years.
The commodity boom, which was characterized by a surge in prices of several major commodities, had a significant impact on Indonesia's current account and fiscal balances. The current account balance is an important indicator of a country's external health sector, and the fiscal balance is a crucial indicator of a government's financial health and its ability to meet its financial obligations.
Indonesia has achieved a notable accomplishment of booking a current account surplus, a condition which had not been seen since 2011. Specifically, the country's current account balance recorded a surplus of 1.0 percent of the gross domestic product (GDP) in 2022, following a surplus of 0.3 percent of the GDP in 2021.
This has been attributed, in part, to the increase in exports, which has been fueled by robust external demand and higher commodity prices, particularly for coal and crude palm oil. Exports recorded an impressive double-digit growth of 41.92 percent in 2021 and 26.07 percent in 2022.
These favorable export conditions were driven by the post-pandemic global economic recovery and high commodity prices resulting from the global supply chain disruption amid heated geopolitical tensions. Additionally, Indonesia's nickel downstream has been performing well, and the exports of iron and steel have notably grown, contributing to the positive trend in the current account balance.
The commodity windfall also led to an increase in government revenues, mainly through the non-tax state revenue, the non-oil and gas income tax and export duties. The government revenues jumped by 21.56 percent in 2021 and 30.58 percent in 2022.
As a result, the government's fiscal balance improved significantly during the commodity boom period. The fiscal deficit kept narrowing from 2020 in which the government was allowed to run a fiscal deficit exceeding 3 percent of the GDP for three years amid the extraordinary condition of COVID-19 pandemic.
