JAKARTA (TheInsiderStories) – Indonesia economy continued to expand at a solid pace during the third quarter of 2017 helped by commodity tailwinds and stronger domestic and external demand. This trend should carry on through to next year, according to the World Bank’s December 2017 Indonesia Economic Quarterly.
The country’s real GDP growth is projected to reach 5.1 per cent for the full year 2017 and accelerating to 5.3 per cent in 2018, driven by continued strong investment growth, further recovery in consumption and an increase in government spending.
The GDP growth increased from 5.0 per cent in the second quarter to 5.1 per cent in the third quarter of 2017. Investment growth rose to its highest level in more than four years and foreign direct investment recorded the largest net inflow in more than seven years. Export and import volumes registered a double-digit growth for the first time since 2012.
“In addition to external factors such as higher commodity prices and stronger global growth, the solid performances of the Indonesian economy was also supported by a better business environment that is attracting more foreign direct investment, as well as more public capital investment, which is the direct positive impact of fuel subsidies reduction of two years,” said Rodrigo A. Chaves, World Bank Country Director in Indonesia.
“This reflects the importance for the Government to preserve in implementing further ambitious reforms such as increasing tax collection and continuing to rationalize subsidies to accelerate infrastructure and human capital development.”
There are also signs that private consumption has started to recover. Sales of consumer durables such as car and motorcycles rebounded, with the latter double-digits in the third quarter after three years of consecutive contractions.
Effective government spending is also crucial to economic development. More than half of total government spending across all levels of government in Indonesia is conducted by sub-national governments, with 38 percent managed by district governments and 15 percent by provinces.
This substantial allocation of resources to local governments, a product of Indonesia’s decentralization policy since the early 2000s, reflects the primary responsibilities of local government to deliver basic services, notably health, education and local infrastructure.
Decentralization has increased opportunities for local solutions to local problems. Access to service has improved over the past 15 years of greater decentralization, but service delivery outcomes vary widely among local governments. The report, titled Decentralization that delivers, examines the wide-ranging performance of local government and identifies the mechanism to help local government perform better.
“Improving service delivery by local governments requires working on three: more incentives for better performance, more information for citizens and the central government to better monitor local government performance and more interaction between citizens and business and their local government,” said Frederico Gil Sander, Lead Economist for World Bank Indonesia.
Written by Elisa Valenta, email: elisa.valenta@