Indonesia Records First Trade Deficit Since 2020 as Oil Imports Surge

Energy Costs Break Surplus Streak

Indonesia's trade balance turned negative in May 2026, ending a 72-month run of consecutive surpluses that stretched back to April 2020. The archipelago nation recorded a $1.61 billion deficit as oil and gas imports climbed sharply while exports of palm oil and steel products slumped.

Statistics Indonesia reported the deficit on July 1, with official Ateng Hartono pointing to the oil and gas shortfall as the primary driver. Oil and gas imports jumped 71 percent year-on-year to $4.51 billion in May, propelled by both higher global prices and a 7.28 percent increase in import volumes. Meanwhile, oil and gas exports fell 32 percent to $760 million over the same period.

The last time Indonesia ran a monthly trade deficit was April 2020, when imports exceeded exports by $375 million during the early months of the pandemic. The May 2026 shortfall differs in composition: non-oil and gas trade remained in surplus, unlike the 2020 episode.

Import Growth Across Categories

Imports rose across all three major use categories tracked by Statistics Indonesia. Consumption goods imports climbed 22 percent year-on-year, while capital goods rose 12.7 percent. Raw materials and auxiliary goods, which typically represent more than two-thirds of total imports, surged 25 percent, driven by mineral fuels, electrical machinery, and mechanical devices.

The broad-based import growth reflects both cost inflation in global supply chains and strong domestic demand for production inputs, according to Permata Bank chief economist Josua Pardede. The rupiah's recent depreciation has compounded the burden on Indonesian manufacturers, who face rising costs for imported components and materials.

Manufacturing purchasing managers reported substantial input cost inflation in May, which accelerated further in June to the second-highest rate since the survey began.

Export Weakness Compounds Pressure

Total exports contracted 5.73 percent year-on-year in May, with two of Indonesia's three main export commodities posting declines. Crude palm oil and palm oil derivative shipments fell 26 percent, while iron and steel exports dropped 14.7 percent. Coal was the lone bright spot, with export values rising 4.11 percent despite a 13.6 percent decline in volume, reflecting higher global coal prices.

The export weakness stems partly from softer global demand amid trade tensions and economic uncertainty. The comparison to May 2025 is particularly challenging, as traders had frontloaded shipments to the United States that month to avoid anticipated tariffs under the Trump administration.

Josua noted that the short-term pressures expose structural weaknesses in Indonesia's export mix, which remains heavily weighted toward commodities and intermediate goods. The country's export basket lacks significant volumes of high value-added products such as advanced electronics, semiconductors, and technology goods.

Rupiah and Policy Implications

Economists warn that a sustained trade deficit could pressure Indonesia's currency and broader economic stability. A persistent shortfall would signal that dollar inflows from merchandise trade are insufficient to support the rupiah, according to Syafruddin Karimi, economics professor at Andalas University.

A weaker rupiah would drive up the cost of imported raw materials, squeezing producer margins and potentially weakening consumption. The fiscal implications are significant: Indonesia's energy subsidy costs and debt servicing obligations are sensitive to both exchange rate movements and commodity prices.

The trade deficit may also constrain monetary policy flexibility. If the shortfall persists, it could widen the current account deficit and limit the central bank's ability to reduce interest rates, even as inflation dynamics might otherwise support easier policy.

Policy Recommendations

Josua recommended that the government focus on reducing fuel consumption and strengthening domestic energy production, including accelerating the transition to renewable energy sources. He also called for curbing imports of consumer goods and promoting export growth through downstream industrial development that genuinely enhances competitiveness, rather than relying solely on export restrictions.

The May deficit arrives as Indonesia pursues ambitious growth targets under President Prabowo Subianto's administration. Whether the shortfall proves temporary or marks a shift in the country's trade position will depend on global oil price movements, the trajectory of export demand, and the effectiveness of policy responses in the coming months.

For now, the rupiah's stability and Indonesia's manufacturing competitiveness face headwinds from the dual pressures of elevated energy import costs and weakening demand for the country's key export commodities.