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JAKARTA (TheInsiderStories) – Indonesia’s economic outlook continues to be positive with GDP growth projected to reach an average 5.3 per cent in the period 2018-2020, according to World Bank’s March 2018 Indonesia Quarterly report. The report highlighted the need for the government to make bold and impactful policies to accelerate the economic growth.

Although the tailwinds from commodity prices are expected to wane and eventually turn headwinds, the momentum in import-investment growth is expected to continue in the near term.

Indonesia’s real GDP growth picked up to 5.2 per cent year-on-year in the fourth quarter of 2017 from 5.1 percent in the previous quarter. For 2017, the country’s GDP growth rose to 5.1 percent from 5.0 percent in 2016, its highest growth rate in four years.

The faster growth in 2017 was due to stronger investments and net exports, lifted by improved global trade, and the continued recovery in commodity prices. Public investments also supported growth, with total government spending growing the fastest in three years.

However, the forecast faces risks if global trade slows along with the growth of domestic private consumption, which constitutes over half of the country’s GDP.

World Bank suggested the government to put forward bold policies to radically open the economy and bring in investments and jobs.

“But to meaningfully accelerate investments outside the mining sector, Indonesia needs to consider putting together a bold and impactful mixture of policies that will open the economy,” said Rodrigo A. Chaves, World Bank Country Director for Indonesia and Timor-Leste.

This issue of the Economic Quarterly focuses on collecting more and spending better for inclusive growth. Over the last 15 years, fiscal policy has contributed to Indonesia’s economic growth by maintaining macroeconomic stability. However, the bank suggested fiscal policies can play a larger role to ensure sustainable and inclusive growth.

 

 

 

 

 

Low inflation, spending in the upcoming elections and stronger commodity prices are expected to boost consumption growth.

Headline inflation is expected to pick up from 2019 partly due to higher import costs associated with higher crude oil prices.

Meanwhile, the fiscal balance is expected to narrow modestly over the forecasting horizon, in line with the smaller deficit stipulated in the 2018 State Budget, high oil prices and critical revenue-enhancing reforms being implemented, boosting total collections.

Indonesia can reduce inequality by increasing the level and efficiency of expenditures that benefit the bottom 60 per cent of Indonesian families. Most of these expenditures, such as health and education, also address inequality of opportunity and build the foundations for solid growth in the future.

“To support inclusive growth, Indonesia could spend more effectively in education and spend more in priority areas such as infrastructure, health, and social assistance. Increased spending could be supported by collecting more revenues in an efficient, growth-friendly manner,” said Frederico Gil Sander, Lead Economist for the World Bank in Indonesia.

In responding the report, Minister of Finance Sri Mulyani said the government will focus to chase and maintain the momentum of better growth by optimizing investment and export as two key factors of growth in the future.

“We have to be very careful especially under the trend of commodity price increases that can also be translated into Indonesian coal price. Therefore, volatile food or administered price goods can also be something really need to be looked at, so that it can maintain its growth a healthy level,” she said.

The government will also focus in maintaining debt level which recently sparks criticism by President Joko Widodo’s political opponents after the government debt today has reached Rp4,000 trillion (US$375.6 billion) or 30 per cent of total GDP.

“As Finance Minister, I really look at that, some politicians are very concern about debt, but actually the most important of the budget is revenue and spending side, financing side is important but it’s not the only thing to be concerned about,” she said.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com

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