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World Bank skeptical about RI 'ambitious' growth target
The World Bank has expressed its skepticism over what it calls the âambitious development agendaâ of the new Indonesian government, warning policymakers of serious external risks that might drag down the countryâs medium-term growth outlook
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he World Bank has expressed its skepticism over what it calls the 'ambitious development agenda' of the new Indonesian government, warning policymakers of serious external risks that might drag down the country's medium-term growth outlook.
The US-based institution slashed on Monday its 2015 forecast for Indonesia's gross domestic product (GDP) growth to 5.2 percent from 5.6 percent previously, citing the country's 'disappointing' latest economic data releases.
In the third quarter, Indonesia's economy decelerated to 5 percent, with fixed investments growing at the slowest pace since the global financial crisis, while exports contracted compared to a year earlier.
The combination of domestic and external risks, the World Bank predicted, would make it hard for President Joko 'Jokowi' Widodo to spur economic growth to 7 percent as promised during his presidential campaign.
'Getting 7 percent growth might be harder than in the past. It takes much more work in a new environment to get 7 percent growth, rather than in the commodity-boom era,' said Ndiame Diop, World Bank lead economist for Indonesia.
Beyond growth, it would be too soon to conclude that the decline in oil prices would benefit Indonesia's trade balance, Diop said, pointing to the downward trajectory of commodity prices, which limit recovery in the country's current-account deficit.
Current-account deficit, the major worry among foreign investors toward Indonesia, would only narrow from an estimated 3.2 percent this year to 2.8 percent next year, still well below Bank Indonesia's (BI) safe level of 2.5 percent.
Therefore, Indonesia would still be 'vulnerable to external financing shocks' because of its balance of payments posture, Diop noted.
Axel van Trotsenburg, World Bank vice president for East Asia and the Pacific, said that slower-than-expected global economic recovery would pose significant challenges for Indonesia.
This is because Indonesia's trading partners such as China, Japan and Europe are likely to be mired in their own economic problems while the US appears to be the only bright spot in the uncertain global economy.
Consequently, that might hamper Indonesia's exports and its long-term development plan, Van Trotsenburg warned.
In its quarterly economic report released on Monday, titled Delivering Change, the World Bank suggested that the new Indonesian government tackle three major economic issues: mobilizing more state revenue, improving public service delivery and preparing the services sector ahead of regional ASEAN integration.
The World Bank also argued that, while Jokowi's bold fuel-subsidy reduction might warrant praise, questions remained on whether the additional funds could be disbursed effectively to other spending allocations, such as infrastructure.
Historical patterns show that Indonesia's capital expenditures have 'significantly underperformed', the World Bank noted. The government, for example, only managed to realize 38 percent of its capital expenditure allocation as of October this year.
'The low budget-execution rates and other implementation challenges, including capital expenditure, may limit the extent to which fiscal resources can be effectively deployed, at least in the short term, to priority areas,' the World Bank wrote in its report.
'Indonesia's new government has taken positive early steps, but, given the scale of the challenges to be addressed, further work lies ahead to deliver on an ambitious development agenda,' it stated.
