The near-term outlook for Indonesia remains favorable, with growth pegged at 5.0% in 2016 year-over-year and expected to rise modestly to 5.1% in 2017, according to the International Monetary Fund (IMF).
Indonesia’s strong growth in the foreseeable future is supported by solid economic policies and increased household consumption, the Washington-based institution said in its latest report on Southeast Asia’s largest economy.
However, it also emphasized that Indonesia needs more investment to sustain and accelerate the pace of economic growth over the medium term. Another concern involves the external risks. Apart from uncertainty stemming from the U.S., China’s re-balancing poses challenges to Indonesia’s favorable outlook.
“Existing global uncertainties are a real challenge, including the new economic and political policies under the US Donald Trump administration. Another challenge for Indonesia is China’s re-balancing. China is a key trading partner of Indonesia and therefore re-balancing or a continued economic slowdown in the world’s second-largest economy will have an immediate impact on the Indonesian economy,” the IMF said.
To best adapt to this new environment, Indonesia needs to stand ready to manage short-term risks and, at the same time, ramp up economic reforms to increase potential growth, it continued.
Regarding government policy, the IMF applauded the Indonesian government’s eagerness to implement reforms to improve the investment climate and boost macroeconomic growth. These policies include expanding investment in public infrastructure, reducing the layers of government regulations, and opening up new areas of the economy to private investment.
The government’s strategy to strengthen tax collection and broaden the tax base through tax reform, particularly through the tax amnesty program, will also generate additional revenues to pay for priority government investment.
The IMF added that Indonesia’s youthful workforce has the potential to be a powerful economic strength. However, it requires reforms to narrow the skills gaps that exist between what employers need and what employees have.
Short of target
Meanwhile, Indonesia’s Coordinating Minister for Economic Affairs Darmin Nasution said the government was a bit disappointed by the country’s growth of 5.0% in 2016.
“It slightly fell (short of the target). After all, if we look at the factors that have influenced it, we must admit that our revenues were not too good and so we cut budget spending,” he said, as quoted by Antara News.
The Central Statistics Agency stated that the economy expanded 4.94% in the fourth quarter of 2016, bringing the national growth to 5.02% for all of 2016, up just 0.14% compared to 2015.
Photo: yohanes budiyanto
