Indonesia’s Current Account Deficit Tripled in One Quarter. Oil Imports Are to Blame

Indonesia has just recorded its widest current account deficit in years, and the cause is a commodity it buys rather than one it sells.

Bank Indonesia reported that the current account recorded a $12.5 billion deficit in the second quarter, equivalent to 3.3% of GDP — more than triple the $3.6 billion, or 1.0% of GDP, recorded in the first quarter.

The central bank attributed the widening to two factors it describes as temporary: a widening oil and gas trade deficit caused by more expensive oil imports amid elevated global prices, and a narrowing non-oil and gas trade surplus as domestic economic growth pulled in more imports.

Both are real. Whether either is temporary depends on events in the Strait of Hormuz rather than in Jakarta.

Why Indonesia sits on the wrong side of this

Indonesia is an established LNG exporter, which has led some coverage to treat it as a beneficiary of higher energy prices. On crude, the position is reversed: the country is a net importer, and has been for years.

That distinction determines how the shock arrives. Where Germany faces a gas storage problem and Italy faces electricity priced at the gas margin, Indonesia faces a trade account. Higher crude prices mean a larger import bill in dollars, which widens the current account gap, which puts pressure on the rupiah — and a weaker rupiah makes the same barrels cost more in local currency.

Analysts have warned that a prolonged closure of the Strait of Hormuz could push crude substantially higher. For an oil-importing economy already running a 3.3% deficit, that is the central risk to the outlook.

The import surge is also a growth story

The second driver is more ambiguous, because it reflects strength rather than weakness.

Indonesia's economy grew 5.29% year on year in the second quarter, above market expectations of 5.1%, though slower than the 5.61% recorded in the first — which had been the strongest annual growth since the third quarter of 2022. Fixed investment accelerated to 6.87% from 5.96%.

The trade detail is where the current account figure originates. Imports rose 8.82% against export growth of 4.13%, reflecting resilient domestic demand. An economy importing capital goods and inputs faster than it exports is running a deficit for investment reasons rather than consumption ones, which is a materially better problem — but it still shows up as a deficit.

Private consumption growth eased to 5.06% from 5.52%, and government spending decelerated sharply to 15.97% from 21.81%.

The central bank has already been defending the currency

Bank Indonesia's policy stance had shifted well before this data landed.

The BI-Rate was raised by 50 basis points to 5.25% in May, a reversal after cumulative cuts of 150 basis points from September 2024 had taken the rate to 4.75% — its lowest since October 2022. The bank also lifted rates on its rupiah securities to 6.21%, 6.31% and 6.45% across six, nine and twelve-month tenors, explicitly to strengthen exchange rate stability amid what it called severe global turmoil caused by the war in the Middle East.

Those measures worked in the short term, attracting net portfolio inflows of $5.5 billion in the second quarter. Reserve assets stood at $146.2 billion at end-April, equivalent to 5.8 months of imports and comfortably above international adequacy standards.

Bank Indonesia held rates at its July meeting, a decision several analysts had not expected.

What to watch

The 3.3% figure is the number to track. Indonesia has historically drawn investor scrutiny when the current account deficit approaches 3% of GDP, and the country's vulnerability to portfolio outflows at those levels is well documented from previous cycles.

The second is whether the deficit narrows as Bank Indonesia expects. If oil prices stay elevated into the third quarter, the temporary characterisation becomes harder to sustain.

The third is the fuel subsidy. The OECD has projected Indonesian headline inflation rising to 3.4% in 2026 as higher global energy prices pass through, notwithstanding partial cushioning from the current fuel price freeze. That freeze holds down inflation and widens the fiscal deficit at the same time — and it is a choice, not a constant.