International Monetary Fund (IMF) cut Indonesia' economic growth projection in 2021 to 4.8 Percent and 6.0 percent . Earlier, the agency sees the Southeast Asian largest economy could grow 6.1 percent and contraction 1.5 percent in this year - Photo: Special

JAKARTA (TheInsiderStories) – International Monetary Fund (IMF) cut Indonesia’ economic growth projection in 2021 to 4.8 Percent and 6.0 percent . Earlier, the agency sees the Southeast Asian largest economy could grow 6.1 percent and contraction 1.5 percent in this year. The Fund said, the Indonesian economy has rebounded in the second half of 2020, and the recovery is expected to accelerate in 2021 and 2022.

“The outlook is positive. Building on the economic rebound in the second half of 2020, real GDP is projected to expand by 4.8 percent in 2021 and 6 percent in 2022, led by strong policy support measures, including COVID-19 vaccine distribution plans as well as improved global economic and financial conditions,” wrote the statement.

It said, the uncertainty surrounding the growth outlook is larger than usual. Early widespread vaccination is an upside risk, while delays could lead to a more protracted pandemic, a downside risk. The macro-financial fallout of the pandemic and economic downturn could be larger-than-expected, and credit conditions could be slow to improve.

“To secure the ongoing recovery, sufficient policy support will be essential. The accommodative macroeconomic policy mix expected in 2021 is thus welcome. For the medium term, restoring the macroeconomic policy framework that has been appropriately and temporally suspended during the pandemic will reinforce Indonesia’ prudent policy track record,” IMF stated.

Then, a detailed fiscal strategy backed by revenue-boosting measures would help in managing the balancing act. While, maintaining some pandemic-related emergency spending from 2020, the 2021 budget reallocates budget resources and potential carryovers for increased high-impact spending, notably public investment.

IMF also rated, the pursuing monetary accommodation, through a combination of lower policy interest rates and Bank Indonesia (BI)’ government bond purchases, is appropriate under the current exceptional circumstances. The authorities’ plan to use only the market mechanism defined in April 2020 for BI’ government bond purchases in 2021 will provide for a better balance between the benefits and risks associated with monetary budget financing by the central bank.

“The banking system remains stable, owing to bold and timely policy interventions. Adequate loan loss provisioning will nevertheless be critical for banks’ ability to absorb rising asset quality risks. The authorities are also preparing a range of policy measures aimed at promoting bank lending, especially for SME financing,” said the Fund.

These measures could be complemented by additional, targeted policy steps if aggregate credit does not recover as expected. While, the envisaged financial sector omnibus bill will address regulatory challenges and provide the legal foundation for further financial deepening, which complement other initiatives such as BI’ money market deepening blueprint.

BI’ blueprint on digitally-oriented payment systems will help improve monetary policy transmission, as well as economic and financial inclusion. The government’ emphasis on the importance of safeguarding the operational independence of the central bank is welcome.

“The omnibus law on job creation should help lower obstacles to new job-creating investment and boosting productivity. The implementation of the Regional Comprehensive Economic Partnership in Indonesia would reinforce these benefits for Indonesia,” the agency stated.

“Indonesia’ proactive policies tackling climate change issues could put further emphasis on a greener economy. At the same time, further progress in the monitoring and execution of adaptation plans towards increasing the resilience to climate change would be desirable, given Indonesia’s high exposure to related natural hazards.

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