October 2016 Indonesia Economic Quarterly: Pressures Easing

Indonesia’s economy remains resilient to global headwinds, with fiscal management helping to support the country’s growth and reduce poverty.

World Bank Group

Key findings:

  • Improved fiscal management strengthens Indonesia’s economic resilience.
  • External risks to the country’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 also helped reduce fiscal risks. Tax collection in the first phase of the program reached IDR 93.4 trillion—56.6% 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 June Quarterly 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 – fell 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. 
  • Tourism is a promising sector to boost the country’s growth. Growth in this sector could help unlock private investment, create jobs, boost exports and guide infrastructure investments. According to the World Travel and Tourism Council, every $1 million in travel and tourism spending supports around 200 jobs and $1.7 million in GDP for Indonesia.
  • This edition of the IEQ also discusses: food security policies, including the impacts of government subsidies; how increased teacher qualifications have not resulted in better student learning outcomes; and how improving access to water, sanitation and hygiene services can help reduce stunting and poverty.