TEMPO.CO, Jakarta-The International Monetary Fund (IMF) and the World Bank yesterday cut their forecasts for Indonesia's 2016 gross domestic product (GDP) growth.
The IMF lowers its outlook from 5.1 percent to 4.9 percent, while the World Bank revised theirs from 5.3 percent to 5.1 percent.
Rodrigo A. Chaves, World Bank Country Director for Indonesia, said that the projection cut took into account external conditions that are weaker than initial estimates. In addition, the possibility of low state revenue could hinder the government in increasing state expenditures.
"The continuing decline of commodity prices poses a risk to the continuity of government investment. Therefore, private investments become essential," he said in the World Bank's Indonesia Economic Quarterly published on March 15, 2016.
Last year, government spending grew 42 percent, but private investment weakened. It happened during a time when Indonesia was in need of more private investments as revenues from the oil and gas sector were limited. In 2015, the ratio of oil and gas revenues to the GDP only stood at 1.2 percent, below 2012's 3.4 percent.
Ndiame Diop, World Bank chief economist for Indonesia, said that Indonesia's recovery depends on policies to improve the business climate, attract higher private investment, and diversify the economy. This can be done by relying more in the manufacturing and service sector, especially tourism.
He acknowledged the Indonesian government's efforts to boost income through tax policy reform, strengthening tax management, as well as investing in information technology systems and data management. "But the impact of these policy changes will not happen quickly," he said.
Despite the lowered growth outlook, the IMF estimated that Indonesia's economy will improve this year after only growing 4.7 percent in 2015.
There are still risks from external factors, namely the fragility of global financial conditions, the slowdown in emerging economies, as well as weakening commodity markets, IMF mission chief for Indonesia Luis E. Breuer said.
Breuer praised Indonesia's strengthening policy framework that has improved its macroeconomic resilience. The government, he said, has done a good job in the management of monetary and fiscal policies that are more prudent.
"This was marked by the fuel subsidy reform in 2015," he said.
Finance Minister Bambang Brodjonegoro had said this year's economic growth target is pegged at 5.3 percent. To achieve the target, the government is reforming the state budget in terms of both revenues and expenditure. One way is by creating financial stimuli to boost purchasing power and improve the investment climate.
ANGELINA ANJAR SAWITRI | ARKHELAUS WISNU
