President Joko Widodo optimistic that Indonesian economy will grow 5 percent in this year with various effort by the government - Photo by President Office

JAKARTA (TheInsiderStories) – President Joko Widodo optimistic that Indonesian economy will grow 5 percent in this year with various efforts by the government. In the 2021 State Budget, the Southeast largest economy targeting the economy to grow 4.3 to 5.0 percent after contracted 2.19 percent in the previous year.

“Due to the pandemic our economy in uneasy situation. Therefore, we all have to work hard to accelerate our national economic recovery. The target our economic growth growth must reach 5 percent,” he told trade ministry officials on Thursday (03/04).

He urged, his staff work more detail and analyzed which sectors are disrupted and what to do with their problems. If needs an incentive, he asserted, the government must give it. Then, he also pushed the officials to inviting new investment to the country. According to the former Jakarta governor, investment, exports and job creation are the keys to Indonesia’ economic growth.

“The key to our economic growth growth is in investment. Because it is impossible for us to drastically increase our state budget,” adds by the head of state.

In this week, the International Monetary Fund (IMF) has reported their outlook on Indonesian economy. The real GDP is projected to expand by 4.8 percent in 2021 and 6 percent in 2022, led by strong policy support measures, including increased public investment and COVID-19 vaccine distribution plans, as well as improved global economic and financial conditions.

Then, inflation is projected to rise gradually to 3 percent at end-2021. The current account deficit is projected to widen to 1.5 percent of GDP in 2021, reflecting higher imports driven by economic recovery. And Credit growth is expected to pick up in 2021 with stronger activity, albeit remaining below nominal GDP growth due to increased risks to asset quality and bank profitability.

The uncertainty surrounding the growth outlook is nevertheless 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.

Based on the analysis, IMF recommended the authorities’ containment measures and supportive macroeconomic policies, which have been instrumental in cushioning the economic impact of the pandemic. They noted that Indonesia’ strong fundamentals and prudent macroeconomic policy track record have contributed to its economy’s resilience.

Directors noted that supportive monetary and fiscal policies along with the envisaged increase in public investment should help foster economic recovery. They observed that risks to the outlook are tilted to the downside, mainly due to domestic and global uncertainties associated with the pandemic.

Early completion of a widespread vaccination program, however, is an upside risk, and Directors were encouraged by the recent increase in the funding for the health policy response to the pandemic. They observed that country has the macroeconomic policy space to provide additional support if downside risks materialize. They welcomed the measures to foster transparency and ensure the effectiveness of pandemic-related spending.

In addition, said IMF, The authorities’ commitment to return to the statutory budget deficit ceiling by 2023, noting the importance of unwinding the exceptional measures in a balanced manner. They stressed the need to underpin the fiscal rules with a medium-term fiscal strategy that includes revenue measures.

Higher government revenues would help create space to boost development spending and support sustainable and inclusive growth. Capacity building support will be crucial. They agreed that maintaining an accommodative monetary policy stance, contingent on the inflation outlook, is appropriate.

They also noted the authorities’ strategy of pursuing monetary accommodation through a combination of lower policy interest rates and government bond purchases by Bank Indonesia in the current exceptional circumstances. To balance the benefits and risks of temporary monetary budget financing, they welcomed Bank Indonesia’ plan to conduct bond purchases in 2021 only as a last resort under the market mechanism.

They suggested that clarifying the last-resort criteria would help enhance the monetary policy framework and safeguard central bank’ operational independence. The agency also noted the role of exchange rate flexibility in absorbing shocks. They noted that the banking system remains stable, but continued monitoring on bank asset quality is warranted.

They emphasized that proactive loan loss provisioning will be critical for banks’ ability to weather any deterioration in asset quality. They noted that additional targeted policy steps to revive credit might be necessary if bank lending to the private sector does not rebound. IMF also highlighted the importance to continue upgrading crisis management and resolution frameworks.

IMF welcomed the authorities’ push for structural reforms with the omnibus bill on job creation, as well as their plans to close infrastructure gaps. They encouraged the authorities to sustain the reform momentum, with a focus on developing a medium-term government revenue strategy, financial deepening and digitalization, and fostering a greener economy and tackling challenges related to climate change.

The Indonesian economy is gradually recovering, owing in part to a bold, comprehensive, and coordinated policy response to address the socio-economic hardship inflicted by the COVID-19 pandemic in the first half of 2020. Real GDP is expected to have contracted by a modest 1.9 percent, inflation rate at 1.7 percent, and the current account deficit is expected to have narrowed to 0.5 percent of GDP in 2020, mostly due to a relatively sharper contraction of imports.

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