Uncertain global economic policy and financial volatility pose risks
Jakarta, January 17, 2017 – Indonesia’s reforms to fiscal policy and the investment climate are expected to boost the economy—projected to grow at 5.3 percent in 2017—according to a new World Bank report released today.
Like the rest of the world, Southeast Asia’s largest economy faces intensifying risks, such as uncertainty in global economic policy and global financial market volatility, says the Indonesia Economic Quarterly, January Edition
The report says Indonesia has improved its fiscal policy credibility by setting more achievable revenue targets in the 2017 Budget. But Indonesia needs to accelerate tax administration and policy reforms in order to increase tax revenue, the report says.
“The 2017 budget improves Indonesia’s quality of spending, including sustained higher allocations for infrastructure, health, and social assistance, and better targeting for energy subsidies and social programs for the poor. It’s very important for Indonesia to sustain this reform momentum so that the country can meet its development goals,” said Rodrigo Chaves, World Bank Country Director for Indonesia.
According to the report, improving the quality of public spending entails two actions. First, reallocating spending toward priority sectors where public spending is low and additional spending can have the greatest impact on poverty and growth. These sectors include infrastructure, health, and social assistance. Second, maximizing the effectiveness of spending in all sectors—particularly agriculture, education, and social assistance.
The Bank’s growth projections for Indonesia are unchanged from its last update in October: 5.1 percent in 2016 and 5.3 percent in 2017. GDP growth was 5.0 percent year-on-year in Q3, easing slightly from 5.2 percent in Q2 of 2016.
The report also highlights Indonesia’s recent improvement in the World Bank’s Ease of Doing Business ranking to No.91 in 2017 from No. 106 in 2016, making it among the top 10 improvers globally. This improvement is particularly thanks to reforms that eased Starting a Business, Getting Electricity, and Paying Taxes, Registering Property, Getting Credit, Enforcing Contracts and Trading Across Borders
“The government’s investment climate reforms have made it easier for businesses to open and operate, but boosting private investment for economic growth will require policymakers to move now on medium-term structural reforms” said Hans Anand Beck, Acting Lead Economist “
The report, now in its sixth year of production, is produced with support from the Australian government’s Department of Foreign Affairs and Trade.