The IMF considers that Indonesia's economic performance is healthy amidst high global challenges and is capable of showing good post-pandemic economic recovery.
In that report, lending institutions emphasized that Indonesia's strong economic growth performance was supported by well-coordinated policies including the formulation of prudent fiscal and monetary policies.
In response to this, the Head of the Fiscal Policy Office of the Ministry of Finance, Febrio Nathan Kacaribu, said that Indonesia is one of the countries that has been able to recover quickly from the pandemic. According to him, this is reflected in the maintained financial sector and the recovery of the Micro, Small and Medium Enterprises (MSMEs) sector.
"Broad recovery can also be seen in various sectors that were previously quite deeply affected by the pandemic, such as the transportation, hotel and restaurant sectors," he said in a press release quoted on Thursday, June 29, 2023.
However, currently Indonesia still needs to be aware of external risks that are still high, which according to the IMF stem from various factors. First, the global economic slowdown which could put pressure on the prices of several Indonesian export commodities.
Second, the volatility of global financial markets is partly due to the sentiment of US banking failures and tightening global liquidity. Third, geopolitical tensions tend to increase.
On the other hand, China's economic recovery is expected to strengthen and the moderating trend of inflation in Indonesia's trading partners will continue so as to boost the economic outlook going forward.
Structural reform-oriented economic policies
For the medium to long term, said Febrio, the government will also continue to push for prudent economic policies oriented towards comprehensive structural reforms.Consolidation of macroeconomic policies has also continued, including the return of the state budget deficit to a level below three percent of GDP, one year ahead of the initial plan. This measurable fiscal consolidation has received appreciation from many parties.
The implementation of Indonesia's various structural reform agendas has also received good reception, such as tax reform, the Omnibus Law on Job Creation, and the Financial Sector Omnibus Law which was recently passed.
Going forward, Indonesia is committed to continuing to strengthen its economic transformation, including through a downstream strategy for a more diversified and high added value economic structure.
The commitment of the Indonesian government is very high in maintaining stability while continuing to provide support for medium and long term economic development.
"Various reform efforts will continue to be strengthened to encourage higher, inclusive and sustainable growth, such as through improving the quality of human resources, accelerating infrastructure development, and institutional strengthening," concluded Febrio.
Economic development through strengthening the foundation
In its report, the IMF assesses that the direction of Indonesia's economic development continues to be oriented towards strengthening the foundation through the implementation of a comprehensive reform agenda to improve the business climate, economic diversification, and mitigate the impact of climate change.The IMF also predicts Indonesia's solid economic growth performance to continue. The Indonesian economy is projected to grow 5.0 percent in 2023 and 5.1 percent in 2024.
This projection is much higher than the projected global average growth of 2.8 percent for 2023 and 3.0 percent for 2024 (WEO, April 2023).
When compared to the G20 and ASEAN-6 countries, Indonesia's economic growth projection is one of the highest, along with the Philippines, India and Vietnam.
In its report, the IMF also underlined the various positive achievements of the Indonesian economy. Indonesia's strong economic growth of up to 5.3 percent in 2022 is driven by increased domestic demand, strengthening of important sectors such as manufacturing and services, as well as high export growth.
The solid economic performance was also evident from the improvement in the labor market, which was marked by a decrease in the unemployment rate. Inflationary pressure in Indonesia has also continued to subside on the back of effective policy coordination and falling commodity prices.
On the other hand, the condition of the Indonesian financial system remained stable and profitable amidst the high global financial turmoil. The government together with Bank Indonesia, the Financial Services Authority, and the Deposit Insurance Corporation continue to coordinate within the Financial System Stability Committee (KSSK) to ensure financial sector stability on a regular basis. (Kevin Schreiber)
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