Indonesia's twin budget and current account deficits are threatening to "go wild" once again, and soon, warns Société Générale.
"The Indonesian government has sounded the victory bugle a tad too early, it seems," Kunal Kumar Kundu, economist at Société Générale wrote in a note.
A ban on mineral ore exports, lower-than-expected coal and palm oil exports and falling oil production are set to exacerbate the country's deficits, according to the bank.
The bank revised its current account deficit target to 3 percent of gross domestic product (GDP) from 2.8 percent and its budget deficit target to 2.5 percent from 2 percent. It also reduced its annual GDP forecast to 5.2 percent from 5.3 percent.
Southeast Asia's largest economy was hit hard by an exodus of foreign capital from its asset markets last summer when the Federal Reserve signaled it would scale back monetary stimulus. It was punished by investors due to structural weaknesses in its economy, in particular its wide current account gap that makes its heavily reliant on foreign capital for funding.
A widening of its current account and fiscal deficits puts the country at risk further capital outflows and financial stress.
Current account dynamics
Indonesia's current account – the broadest measure of trade in goods and services, which has been in deficit since late 2011 – could come under further pressure owing to a few factors.
A key factor is the government's move in January to ban exports of raw mineral ores in a move to promote domestic processing – which has already started to bite, said Kundu.
"The result of the ban is that exports of nickel and copper ore have stalled completely, while exports of bauxite have fallen to a trickle," he said.