TEMPO.CO, Jakarta – World Bank economist Ndiame Diop said Indonesia’s economy is facing two challenges in the end of 2014. Those two challenges are capital expenditure absorption that is still far a cry from expectations and decrease in current account deficit.

Until late October, capital expenditure realization only reached around 38 percent from the state budget, while current account deficit was only 3.1 percent from GDP in 2014’s third quarter. “Gradual decrease in current account deficit will likely keep going and can reach 2.8 percent from GDP in 2015,” said Diop.

Diop said Indonesia had a chance to improve public services after having fiscal space of Rp100 trillion from subsidized fuel price adjustments. He said good budget allocation, including for health services and social security programs, could accelerate the slowdown in eradicating poverty. “Without the support, poverty rate that is currently at 11.3 percent, will still be above eight percent in 2018,” he said.

Diop added although fuel price adjustments had provided space for infrastructure and social security, they also increased inflation rate from the initial projection in the short-term. Diop said inflation rate would reach 7.5 percent in 2015 and decrease rapidly. Overall, the World Bank is optimistic that Indonesia’s economy will have better growth despite challenges in investment and export in 2015.

In its quarterly report, the World Bank estimates Indonesia’s economy will grow 5.1 percent in 2014, which is lower than its previous report’s projection of 5.2 percent. Diop said the slowdown in global economic growth had decreased prices of some commodities in Indonesia. “This will reduce the opportunity for growth,” said Diop.

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