ADB Releases New Report, Revises Outlook on Indonesia Economy

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  • A structure being built in Jakarta's Sudirman area on March 18, 2016. The government's spending contributes 11%-12% to the national economy.  TEMPO/Tony Hartawan

    A structure being built in Jakarta's Sudirman area on March 18, 2016. The government's spending contributes 11%-12% to the national economy. TEMPO/Tony Hartawan

    TEMPO.CO, Jakarta - An Asian Development Bank (ADB) report released on Tuesday, September 27, 2016, stated that growth in Southeast Asia’s largest economy is expected to continue at a healthy pace this year and next year, even as the region faces a number of short term headwinds.

    In an update of its flagship annual economic publication, Asian Development Outlook 2016, ADB trimmed its 2016 gross domestic product (GDP) growth forecast for Indonesia to 5.0 percent from the previous 5.2 percent in March 2016. The report also trim down its 2017 Indonesian economic growth estimate from 5.5 percent, to 5.1 percent. The adjustments reflected a slower than previously anticipated pickup in investment spending. 

    "Despite a challenging environment, Indonesia’s economy is still poised to grow at a healthy pace this year," said Sona Shrestha, ADB Deputy Country Director for Indonesia. "As the country’s policy reforms take hold and the major industrial economies pickup, we are likely to see further economic expansion in the coming year." 

    The report also noted that higher minimum wages, an increase in the tax-free income threshold, and decelerating inflation will help to drive growth in private consumption. Higher budget allocations for the government's Village Fund, and better prospects for agriculture will boost rural incomes.

    In addition, the report also said that government spending on infrastructure is predicted to accelerates in the second half of 2016, in line with the annual pattern of higher outlays toward the end of the year, but public investment overall will be dampened by significant shortfalls in revenue. Private investment will benefit from implementation of a series of policy reforms announced by the government. Notable improvements include the opening of an additional 35 industries for foreign ownership, and the significant streamlining of processes for securing business permits. 

    The report added that Indonesian policymakers should consider measures to address the risk to the growth outlook from further budget cuts and delays in infrastructure projects. It also notes the weaknesses in the labor market, which could dent consumer confidence.

    MAHINDA ARKYASA