JAKARTA: The World Bank has maintained its forecast for Indonesia’s gross domestic product growth this year at 5.1 percent.
“We look at total investment as an important determinant of growth,” Hans Anand Beck, a senior economist at the World Bank, said. “It strengthens both demand in the near term and the potential growth rate in the future,” he said.
Sudhir Shetty, World Bank chief economist for the East Asia Pacific region, said in a press conference that the bank expects Indonesia to grow steadily from 4.8 percent last year to 5.3 percent in 2017 and 5.5 percent in 2018.
This is compared to China’s GDP growth forecast at 6.7 percent this year to 6.5 percent in 2017 and 6.3 percent in 2018. This is also in comparison to East Asia that is forecast to grow to 5.8 percent this year and 5.7 percent in 2017 and 2018.
The World Bank expects Indonesia’s strong private consumption that contributes to more than half of the country’s economic growth on the back of sound monetary policies and higher public investment, to support domestic activities and weather the unfavorable global environment, including the sluggish growth in advanced economies and stagnant global trade.
In the report, the bank expects private consumption to pick up slightly on the back of moderate inflation, lower energy prices, relatively stable currency and fiscal support such as higher non-taxable income threshold and additional monthly salary for civil servants.
The bank lauded the government’s attempts to improve fiscal planning and execution, that includes revising the 2016 state budget, explicitly noting bigger shortfalls this year and setting prudent revenue targets in next year’s state budget. It also mentioned that the government’s policy packages are deemed “comprehensive” to support retail and manufacturing industries.
Still, the bank warns of the challenges in revenue collection due to falling commodity prices which make commodity-driven firms struggle to pay their tax. Less tax collection will limit the government’s support for development.
The government has so far collected Rp 791.9 trillion ($61 billion) in taxation revenue excluding customs and excise as of the end of September, or 58.4 percent of the Rp 1,355.2 trillion target, with less than three months left until the end of the year.
Weather phenomenons, such as El Niño and La Niña, also poses risks, disturbing production by delaying harvests causing staple food prices to soar and affecting inflation.
The World Bank report recommends that countries across the region promote inclusive growth, rebalance public expenditure to fill infrastructure gaps, address malnutrition and use technology to increase financial inclusion to sustain growth.
