Moody's Investors Service  affirmed Indonesia' local and foreign currency long-term issuer ratings at Baa2 and maintained the stable outlook - Photo: Privacy

JAKARTA (TheInsiderStories) – The World Bank has cut Indonesia’s economic growth forecast to 5 percent for 2019, from the initial 5.1 percent in June, according to its economic quarterly reports published on Wednesday (12/11). For 2020, the bank has set the growth to 5.1 percent from 5.2 percent earlier, as the country will be under long-term threat from increasing global trade tensions.

The lower growth projection reflects weakening global demand and heightened uncertainty around ongoing United States-China trade tensions that have led to a decline in exports and investment growth, testing the resilience of the region, according to the report.

Amid challenging global economic conditions, Indonesia’s economic growth slowed slightly to 5.0 percent in the third quarter of 2019 from 5.1 percent in the previous quarter. The third quarter also saw shifts in the country’s underlying drivers of growth, according to the report.

Fixed investment growth weakened further, due to a significant decline in commodity prices and political uncertainty. Total consumption also slowed. The weaker domestic demand led to a large reduction in imports, which supported economic growth in the quarter.

“Indonesia’s macroeconomic fundamentals remain sound. This has supported a sustained rate of economic growth, which along with strong job creation and low inflation, and the expansion of social assistance programs have contributed to the poverty rate reaching a record low of 9.4 percent in March this year,” said Rolande Pryce, World Bank Acting Country Director for Indonesia and Timor-Leste.

Therefore, countries in the region need to take an “active policy response” by using monetary and fiscal policy tools to stoke growth, said lead economist for East Asia and the Pacific, Andrew Mason.

This edition also looks at how social protection systems can help the government achieve its vision of a high-income status country and reduce poverty to nearly zero by 2045. An inclusive and efficient social protection system is needed to achieve sustained and equitable growth in Indonesia.

“Social protection will be critical to Indonesia building a world-class labor force. A modern, inclusive and efficient social protection system can help build, employ and protect human capital. To meet that goal, however, current social protection programs need to evolve and adapt to emerging demographic, technological and environmental trends,” said Frederico Gil Sander, World Bank Lead Economist for Indonesia.

A social protection system for the future must be accessible to all Indonesians regardless of where and how they make a living and should extend protection to the large and growing share of elderly poor and persons with disabilities, according to the report.

To achieve this, Indonesia could implement a social protection system that provides guaranteed minimum protection from childhood to old age, through a coordinated package of social assistance programs. This guaranteed minimum could be complemented with social insurance programs to help maintain family incomes and protect against risks in old age and at times of unemployment.

The current account deficit (CAD) is expected to narrow in the near term from 2.7 percent of GDP in 2019 to 2.6 percent of GDP in 2020. Downside risks to the growth outlook continue to be severe, with protracted trade tensions posing additional risks to commodity prices, international trade flows, global business sentiment and investment growth, and China’s growth outlook.

Meanwhile, Minister of Finance Sri Mulyani Indrawati said that in the beginning, all parties projected 2019 would be brighter, but from quarter to quarter, the prediction of global economic growth became slow down. However, Indonesia has struggled to maintain economic growth above 5 percent.

“It will depend on domestic consumption, as investment weakens due to commodity prices,” she said, adding in 2020, the government will work hard to pursue better economic growth. It will be done by strengthening the economy fundamental, as well as the supportive cabinet.

Written by Staff Editor, Email: theinsiderstories@gmail.com