According to the World Bank, the economy of Indonesia will continue to accelerate in 2017 supported by strengthening global economic growth, overall rising commodity prices (meaning investment and export performance should improve), the nation’s low current account deficit, low inflation, and strong fundamentals of the Indonesian economy. These circumstances should boost Indonesia’s gross domestic product (GDP) growth to 5.2 percent year-on-year (y/y) in 2017 (from 5.0 percent in the preceding year).
However, the World Bank also mentioned several matters that pose downside risks for Indonesia’s economic growth in its March 2017 edition of the Indonesia Economic Quarterly, titled “Staying the Course”. These matters include the possibility of major shifts in trade policies among the advanced economies, unexpected changes in US monetary policy, political uncertainty in Europe, a protracted period of elevated domestic inflation, and weak fiscal revenues.
Meanwhile, there are also domestic risks. Although Indonesia’s tax amnesty program was a success in terms of tax declarations (and thus government revenue collection increased), non-tax amnesty revenue collection in Indonesia actually weakened in 2016. This is a concern because rising government revenue is required to invest more heavily in the economy of Indonesia (particularly government investment in infrastructure development is required). On the other hand, fiscal policy credibility was enhanced by cuts in government expenditure, along with the more achievable revenue (and tax) targets in the 2017 State Budget, which bolstered investor confidence.
Rodrigo A.Chaves, World Bank Country Director for Indonesia, said “Having achieved robust growth in 2016, the economic outlook for Indonesia remains on the positive side this year. With an increase in commodity prices, 2017 offers an opportunity for Indonesia to solidify its recovery and secure stronger growth in the longer-term. The country will continue benefiting from sustaining structural reforms in order to do so”.