A modern social protection system is critical for faster and more inclusive growth: Report
Jakarta, December 11, 2019 – Amid challenging global economic conditions, Indonesia’s economic growth slowed slightly to 5.0 percent in the third quarter of 2019 from 5.1 percent in the previous quarter. The third quarter also saw shifts in the country’s underlying drivers of growth, according to the World Bank’s December 2019 Indonesia Economic Quarterly, released today.
Fixed investment growth weakened further, due to a significant decline in commodity prices and political uncertainty. Total consumption also slowed. The weaker domestic demand led to a large reduction in imports, which supported economic growth in the quarter.
“Indonesia’s macroeconomic fundamentals remain sound. This has supported a sustained rate of economic growth, which along with strong job creation and low inflation, and the expansion of social assistance programs have contributed to the poverty rate reaching a record low of 9.4% in March this year,” said Rolande Pryce, World Bank Acting Country Director for Indonesia and Timor-Leste.
Indonesia’s GDP is projected to grow at 5.0 percent in 2019 and then rise to 5.1 percent in 2020. This projection is based on easing international trade tensions and reduced domestic political uncertainty. Risks to the country’s growth outlook continue to be significant, with protracted trade tensions posing risks to commodity prices and global business sentiment. The risk of further slowing of the Chinese economy also has the potential to affect Indonesia’s outlook.
This edition of the Indonesia Economic Quarterly also looks at how social protection systems can help the government achieve its vision of a high-income status country and reduce poverty to nearly zero by 2045. An inclusive and efficient social protection system is needed to achieve sustained and equitable growth in Indonesia.
“Social protection will be critical to Indonesia building a world class labor force. A modern, inclusive and efficient social protection system can help build, employ and protect human capital. To meet that goal, however, current social protection programs need to evolve and adapt to emerging demographic, technological and environmental trends,” said Frederico Gil Sander, World Bank Lead Economist for Indonesia.
A social protection system for the future must be accessible to all Indonesians regardless of where and how they make a living and should extend protection to the large and growing share of elderly poor and persons with disabilities, according to the report. To achieve this, Indonesia could implement a social protection system that provides guaranteed minimum protection from childhood to old age, through a coordinated package of social assistance programs. This guaranteed minimum could be complemented with social insurance programs to help maintain family incomes and protect against risks in old age and at times of unemployment.
The Indonesia Economic Quarterly is supported by the Australian Department of Foreign Affairs and Trade.