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Trade deficit at highest level since 2013
The preparations for this year’s Ramadan and Idul Fitri season dealt a serious blow to the trade balance in April as it plunged into a US$2
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span>The preparations for this year’s Ramadan and Idul Fitri season dealt a serious blow to the trade balance in April as it plunged into a US$2.5 billion deficit, the largest monthly deficit recorded since 2013.
The trade deficit in April surpassed the previous deficit record in December 2018 of $2.05 billion and was the largest monthly deficit recorded under the administration of President Joko “Jokowi” Widodo
A major cause of the deficit, which followed trade surpluses of $670 million in March and $330 million in February, was due to weak oil and gas trade balance. In April, oil and gas exports declined by 35 percent month-to-month (mtm) to $740 million, while its oil and gas imports went up by a whopping 47 percent mtm to $2.24 billion despite the government’s measures to reduce imports of consumer goods.
The oil and gas trade balance posted a year-to-date (ytd) deficit of $2.77 billion. This was higher than the total trade deficit of $2.56 billion because the non-oil and gas trade recorded a $204.7 million surplus during the January to April period.
Finance Minister Sri Mulyani Indrawati said on Wednesday that in addition to the sharp increase in oil imports, the large deficit in April was also caused by an increase in raw materials for the manufacturing industry as many factories imported more than usual in April to increase stocks ahead of the annual Idul Fitri holiday season.
Oil and gas have always been the most sought-after commodities for Indonesians during the holy month of Ramadan and at Idul Fitri because of the annual mudik (exodus), which significantly boosts demand for fuel.
Djoko Siswanto, the Energy and Mineral Resources Ministry’s director general for oil and gas, concurred with Sri Mulyani, saying that oil and gas imports in April increased as a result of the preparation of fuel stocks to meet the demand during the holiday season.
“During Ramadan and the Idul Fitri holiday, fuel consumption increases sharply. But fuel imports will decline after April as we will stop diesel fuel imports in May. We also intend to stop the export of crude oil and gas and to shift the supply to the domestic market,” he said on Wednesday.
Oil and gas imports in April were in contrast to the first three months of 2019, when imports declined to $1.52 billion in March from $1.58 billion in February and $1.65 billion in January.
Meanwhile, overall exports dropped 10.8 percent mtm to $12.6 billion, with non-oil and gas exports decreasing 8.7 percent mtm to $11.86 billion.
On the other hand, imports in April increased 12.25 percent mtm to $15.1 billion. Non-oil and gas imports were up by 7.82 percent mtm to $12.86 billion, driven by a 24.1 percent mtm increase in consumer goods imports, such as frozen meat, boneless beef, apples, pears and running shoes.
Sri Mulyani also acknowledged that the deep trade deficit, which was booked against the backdrop of escalating trade tension between the United States and China, posed a “great risk” to the economy.
A substantial drop in exports compared with imports last month confirmed previous signals of a global economic slowdown, and such external turbulence will trickle down to the domestic economy.
“Exports weakened, while we need to anticipate the [performance of] industries that import capital goods and raw materials. These [two factors] will influence our [economic] growth going forward,” said Sri Mulyani, adding that the current predicament would make it harder to maintain positive momentum in investments and the manufacturing sector.
University of Indonesia economist Fithra Faisal Hastiadi echoed Sri Mulyani, saying the deficit could even threaten growth, perhaps dropping below 5 percent this year.
“If the government does not move quickly to mitigate the deficits, I’m afraid that economic growth will be further pressured by our current account deficit [...] and put our growth at just around 4.9 percent,” Fithra told The Jakarta Post over the phone on Wednesday.
The practical solution to the threat, he said, was for the government to start phasing out energy subsidies, especially on fuel, so that government spending would not be burdened by price disparities between the global oil price and subsidized domestic fuel.
