In the October 2016 edition of its flagship Indonesia Economic Quarterly (IEQ) report, titled "Easing Pressures", the World Bank is positive about Indonesia's improved fiscal management and its impact on the nation's gross domestic product (GDP) growth. The Washington-based institution projects Indonesia's economic expansion at 5.1 percent (y/y) in 2016. However, it emphasizes that external risks (sluggish global economic growth and global market volatility) continue to pose a threat.
The government's tax amnesty program, launched in July 2016 and which is scheduled to run until 31 March 2017, has been more successful than initially assumed. So far, the program managed to generate IDR 97.7 trillion (approx. USD $7.5 billion) for the state, hence easing fiscal risks and reducing the need for more cuts in public spending.
Rodrigo Chaves, World Bank Country Director for Indonesia, said “improved fiscal management, sounder public policy and structural reforms, including timely responses on food prices, are yielding positive outcomes. Risks have declined and some indicators improved. Looking forward, we are optimistic that ongoing efforts to develop tourism and manufacturing will result in more jobs, boost export earnings, and further support growth.”
The World Bank also noted that poverty reduction in Indonesia was particularly successful in the first quarter of 2016. Indonesia' poverty rate fell by 0.4 percentage points in Q1-2016, the biggest year-on-year (y/y) decline over the past three years. Government policies that supported this decline were (1) efforts to stabilize the price of rice (including rice imports and market operations) and (2) the expansion of social assistance programs. This includes the family hope conditional cash transfer program that recently expanded reaching 3.5 million Indonesian households.
The October 2016 edition of the World Bank's IEQ also highlights the potential of Indonesia’s tourism sector to unlock private investment, create jobs, boost export earnings, as well as to promote targeted infrastructure investment programs in key tourism destinations.
Ndiame Diop, World Bank Practice Manager for Macroeconomics and Fiscal Management in South East Asia and the Pacific, said Indonesia has the potential to develop a world-class tourism industry. However, he added that tourism destinations need much more infrastructure development, and results require better coordination between government agencies and the private sector.
Indonesia's Tourism Ministry targets to attract USD $10 billion in private investment for ten tourist destinations by the year 2019. Every USD $1 million travel and tourism spending in Indonesia is estimated to create 200 jobs and USD $1.7 million in GDP for Indonesia.
- Improved fiscal management strengthens Indonesia’s economic resilience
- External risks to Indonesia’s economy remains, including weaker-than-expected global growth and volatility in global financial markets
- Domestic fiscal risks have eased due to the recently announced expenditure adjustment for 2016 and a more achievable 2017 draft budget
- Higher-than-previously-estimated revenues from the tax amnesty program helped to reduce fiscal risks. Tax collection in the first phase of the program reached IDR 93.4 trillion, or 56.6 percent of the overall target for all three phases
- GDP growth is projected at 5.1 percent in 2016 and 5.3 percent in 2017 - unchanged from the preceding report. Private consumption is expected to remain resilient and the projected growth pickup relies on stronger private investment
- Growth resilience and policy measures contributed to a fall in poverty. Indonesia’s poverty rate fell by 0.4 percentage points to 10.9 percent in the first quarter of 2016. This is the biggest year-on-year decline in the last three years. Contributing government policies include efforts to stabilize rice prices and an expansion of social assistance
- The Gini coefficient - a measure of inequality - declined by 1.1 points to 39.7 in the first quarter of 2016. The decline was the largest annual drop since the Asian financial crisis of 1997-1998
Poll Indonesia Investments:
Where do you see Indonesia's economic growth in full-year 2016?
Voting possible: -
- Between 5.0% - 5.2% (55%)
- Between 5.2% - 5.4% (19%)
- Below 5.0% (15.5%)
- More than 5.4% (10.5%)
Total amount of votes: 611