International Monetary Fund Positive of the Indonesian Economy
The International Monetary Fund (IMF) released a new report about the Indonesian economy - released on 6 February 2018 - in which the Washington-based institution paints a positive picture of the prospects for economic growth in Indonesia. Indonesia's real GDP growth is projected to rise gradually to 5.6 percent year-on-year (y/y) over the medium term, led by robust domestic demand.
Meanwhile, the IMF projects Indonesian inflation to remain around 3.5 percent (y/y) in 2018, comfortably within the central bank's official target range (2.5 - 4.5 percent y/y), on the back of stable food and administered prices, and well anchored inflation expectations. Indonesia's current account deficit is expected to remain under control near 2 percent of the country's gross domestic product (GDP) amid strengthening commodity prices (which impact positively on Indonesia's export performance) as well as robust (other) exports.
The IMF also sees several risks that can impact negatively on the Indonesian economy. These risks include spikes in global financial volatility, uncertainty around US economic and monetary policies, lower economic growth in China, and geopolitical tensions. Meanwhile, domestic risks include weak tax revenue realization and larger fiscal financing needs due to higher interest rates.
The IMF Board applauds the Indonesian government's and central bank's focus on supporting growth but at the same time safeguarding stability. Their current stance of (monetary) policy is appropriate for targeting price stability and supporting growth. This also includes authorities' commitment to maintain flexibility of the rupiah exchange rate and to limit market intervention by using foreign exchange.
Regarding the Indonesian government's infrastructure development push, the IMF sees good progress. However, the IMF stresses that the pace of infrastructure development should be aligned with available financing as well as the economy's absorptive capacity. Financial resources for infrastructure development should be found at home, preferably with the help of the private sector (including foreign direct investment). This would limit the buildup of corporate external debt and contingent liabilities from state-owned enterprises.
Education (including vocational training and job placement services), labor market regulations and female labor participation are all areas where improvement is needed as this would support employment and combat the rate of unemployment.
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