Jakarta: The Indonesian economy continued to recover in 2021 despite moderating due to the COVID-19 Delta variant wave mid-year. The economy is estimated to have expanded 3.7 percent this year and is forecast to accelerate to 5.2 percent in 2022, the World Bank said on Thursday.
The projection assumes that Indonesia will avoid another severe COVID-19 spike, achieve 70 percent vaccine coverage in 2022 in most provinces, and maintain accommodative monetary and fiscal policies. It also assumes that global trade growth and commodity prices will moderate. These issues are discussed in detailed in the World Bank’s latest Indonesia Economic Prospects report, A Green Horizon, Toward a High Growth and Low Carbon Economy.
"The Delta wave has taught us that continuing to improve vaccine rollout, testing, and tracing, as well as ensuring adequate critical care capacity are among the best ways to prepare for the Omicron variant and any other COVID-19 variants," said World Bank Director for Indonesia and Timor-Leste Satu Kahkonen in a press release on Thursday.
"Beyond a strong public health response, it is also important for Indonesia to sustain recent structural reform efforts. This should accelerate growth even as the authorities start to gradually reduce macroeconomic support," Kahkonen added.
Downside risks to the outlook remain high amid uncertainty about the pandemic, global financial conditions, and scarring effects of the crisis, the report says.
To sustain economic momentum and prevent the effects of the pandemic from leaving lasting economic and social scars, the authorities will need to focus on a policy response that strengthens investment, accelerates human capital accumulation, and boosts productivity, the report recommends. Challenges to this include containing the pandemic by accelerating the vaccine rollout in lagging areas and accelerating testing, tracing, and treatment; and maintaining an accommodative monetary and financial policy stance while preparing to calibrate policies as global and domestic financial pressures evolve.
It will also be important to enhance fiscal space to for the pandemic response and for medium-term fiscal sustainability, the report recommends. The recently adopted Tax Harmonization Law is a critical step to address low tax collection rates. Indonesia’s structural reforms will be important to building a more competitive, resilient, and greener economy.