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RI's growth to recover with sustained momentum for reform
Indonesiaâs economic growth is expected to accelerate again over the next two years if the new government can keep up its momentum on structural reforms such as sharply reducing fuel subsidies, according to a new report by the Asian Development Bank (ADB)
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ndonesia's economic growth is expected to accelerate again over the next two years if the new government can keep up its momentum on structural reforms such as sharply reducing fuel subsidies, according to a new report by the Asian Development Bank (ADB).
'President Joko Widodo's administration has started policy reforms to improve the investment climate. We expect the government will follow through on policies to accelerate infrastructure development, reduce logistical costs and enhance budget implementation,' ADB deputy country director for Indonesia, Edimon Ginting, said on Tuesday.
He said there were downside risks, both internal, such as lower revenues, and external, like the unexpected weakness of major trading partners as well as an eventual rise in US interest rates.
'But the government is well prepared to manage those risks,' said Edimon.
Indonesia's gross domestic product (GDP) growth will reach 5.5 percent this year and 6.0 percent in 2016, the bank said in its flagship annual economic publication, Asian Development Outlook 2015 (ADO).
In 2014, the country's economy expanded 5.0 percent.
The latest ADO said one of the main drivers of expected growth would be last November's cut in fuel subsidies, which had greatly improved the fiscal outlook and freed up significant resources for more productive purposes, including physical and social infrastructure.
'Those savings have allowed the government to more than double its capital spending allocation in 2015, increase outlays on targeted education and health programs and lower the fiscal deficit target to 1.9 percent of GDP,' the report said.
Other factors cited by the ADB report were higher than expected tax revenues, better budget execution, policy reforms to encourage private investment, robust private consumption and a sharp decline in inflation.
After four years of deceleration, 2014 marked the year when policy reforms to spur economic recovery were pushed by the new government that took office in October. What remains to be seen is if the administration will keep the momentum on those reforms and develop an export-oriented manufacturing sector.
ADB said reviving manufacturing was one of Indonesia's main policy challenges, since the commodity boom had already faded. What the country needs is a new source of export growth to help restore GDP growth to above 6 percent. Manufacturing has been constrained by factors such as strained infrastructure, regulatory uncertainties and logistics costs. (ebf)(+++)
