- Fiscal stance is off to a weak start in 2025.
- Reassessment of spending plan might help to keep the annual deficit in check.
- Foreign reserves are at a record high.
- A pause in the US tariffs lowers immediate impact to trade.
- Bank Indonesia will weigh rupiah stability against low inflation.
This is a summary of the report. Please download the pdf for the full report.
1Q25 fiscal math looks daunting
Indonesia’s budget remained in deficit in 1Q25 at -0.4% of GDP, slipping into red earlier than previous years, for instance May last year and October in 2023. Cumulative Jan-Mar25 revenue reportedly declined 13.6% yoy (report), improving from Jan-Feb’s 21% fall, but still signaling a weak underlying impulse. Total expenditure in 1Q25 is up a marginal 1.4% yoy in 1Q25 from 7% drop in first two months of the year, likely driven by slower disbursement of welfare programs (of which the free meal program seems finalised while others are pending) as well as executing the planned budget cuts.
Benign inflation, but BI is watching the rupiah
Passage of one-off support measures led March inflation to tick up to 1.0% in March vs average 0.3% rise in January-February. This is also reflected in the easing rate of decline in administered inflation at -3.2% yoy vs average -7.7% in 2M25. Transportation inflation stayed capped by downward adjustment in non-subsidised prices.
Manageable 2025 current account, global slowdown a risk for next year
Indonesia registered a modest current account deficit at -0.6% of GDP in 2024. Assuming a 20% drop in the goods trade surplus this year and deficits in the invisibles category, we expect the 2025 current account deficit to stand at -0.8% of GDP. On the financing end, net FDI flows are expected to stay firm but slow from 2024, combined with a modest portfolio inflow and a moderate deficit in the remaining items. Cumulatively, this will leave the overall BOP surplus at a fifth of the last six-year average.
Foreign reserves stock rose to a record high of $157.1bn in March, despite strong FX intervention by the central bank. Withdrawal of public sector foreign loans likely added to the stock, besides funds under the mandatory repatriation of selected export earnings.
Tariff overhang
News of the 90-day delay in the tariff rollout helped improve risk sentiments in the Indonesian markets, even as the 10% baseline tariff remains in place. Indonesia’s exports to the US amount to ~2% of GDP (see chart), amongst the lowest exposures in the region, besides Philippines and India. While that will limit the direct impact on the economy, the significantly high reciprocal tariff rate that was announced in the first round came as a surprise. The US had announced a 32% tariff on Indonesia, influenced by the trade balance gap rather than purely the difference in the bilateral tariff rates.
To read the full report, click here to Download the PDF.
Topic
Explore more
E & S FlashGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.