World Banks Cuts Down Prediction on Indonesian Economy
21 July 2014 19:34 WIB
TEMPO.CO, Jakarta - The World Bank has lowered its prediction for Indonesia's economic growth from 5.3 percent last March to 5.2 percent due to weakening commodity prices and credit growth, which limit gross domestic product (GDP) in the near future.
Rodrigo Chaves, World Bank director for Indonesia, said that the widening fiscal deficit will also add more challenges for the new government. "In the near future, overcoming fiscal pressure and current account deficit becomes crucial," said Rodrigo in Jakarta on Monday, July 21, 2014. However, in order to realize long-term goals, structural reforms such as fuel subsidy policy, investment and infrastructure are needed.
According to Rodrigo, one of the hardest moves that must be carried by the Indonesian government is overcoming fiscal vulnerability. Weakening state revenue also enlarges fiscal deficit. The total of state revenue to GDP decreased to 15.3 percent in 2013 from 16.3 percent in 2011.
World Bank's Lead Economist Ndiame Diop also predicted that Indonesia will have a hard time in maintaining a 2.4 percent deficit from the GDP. "One of the steps that can be taken is reducing fuel subsidy and raising tax and non-tax revenues," he said.
In the long run, the new government will also face long-term challenges in tackling rising inequality. Ndiame said that one of the solutions is improving rural infrastructure, expanding access to education and increasing labor market mobility and household income.
FAIZ NASHRILLAH