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Growth target for 2016 unrealistic, say economists
The governmentâs newly unveiled 2016 economic growth target has raised eyebrows, with economists describing it as being too ambitious
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The government's newly unveiled 2016 economic growth target has raised eyebrows, with economists describing it as being too ambitious.
Finance Minister Bambang Brodjonegoro said the government expected the gross domestic product (GDP) growth would reach between 5.8 and 6.2 percent next year, higher than the already ambitious target of 5.7 percent set for this year, despite lingering global uncertainties.
Speaking to lawmakers at the House of Representatives on Wednesday, the minister acknowledged that global uncertainties would remain next year, citing China's slowing economy, volatile commodity prices and the US Federal Reserve's unclear interest rate schedule.
However, the government argued the target would be supported by domestic factors, as it believed various ongoing infrastructure projects would begin to pay off in 2016.
'Investment activities, especially in infrastructure, which are scattered throughout many regions will be the main driver of the economy, which will be more focused on unlocking regional potential as well,' Bambang said in his speech.
At 4.7 percent, Indonesia's economic growth in the first quarter of this year shrank to the slowest level in six years, with analysts predicting about 5 percent growth for the full-year as domestic demand remains weak and with global uncertainties affecting external demand and appetite to invest.
In its 2016 macroeconomic assumptions document, the government estimates that infrastructure improvement will help increase investment performance by between 8.6 percent and 9 percent year-on-year.
Exports are predicted to surge at an annual rate of 4.8 percent to 5.2 percent, supported by the manufacturing sector and other products that have higher added value. On the other hand, imports are expected to climb by 4 percent to 5 percent compared to 2015, as the government seeks to pave easier access for imports of capital goods and raw materials and to curb illegal imports.
Besides GDP growth, the document also outlines the government's outlook on inflation and the exchange rate.
The inflation rate is predicted to level at between 3 percent and 5 percent, and the rupiah exchange rate is predicted to hover around 12,800 to 13,200 per US dollar.
Meanwhile, the government hopes to see the budget deficit stand at 1.7 percent to 2.1 percent of GDP in 2016, according to the document.
DBS Bank economist Gundy Cahyadi said the growth target was a little optimistic, pointing to its own forecast of 5.5 percent for 2016, which he claimed was an improvement on the current trend of about 5 percent.
'Getting back to 6 percent is not impossible, of course, but there is a need to find a boost for growth in consumer spending in the economy. In the past, it used to be commodities. Fiscal spending, we think, remains the key for faster GDP growth going forward,' he said in an email.
According to Gundy, inflation is expected to be biased to the upside, as the rupiah continues to be overshadowed by weak sentiment and the oil price trajectory remains uncertain. 'Even the 5 percent inflation target for end-2015 is no longer a certainty at this point,' he said.
Bank Central Asia (BCA) economist David Sumual also felt that the economic growth target was too high, saying that this year's target of 5.7 percent would be more suitable instead for 2016.
'Investment and government spending are expected to have improved next year. If infrastructure projects run smoothly, it will mean that investment prospects will be brighter and logistics costs will decline. However, the growth range is too high, it would be more appropriate [to set it] at 5.4 percent to 5.8 percent,' he told The Jakarta Post.
Separately, Bank Danamon economist Dian Ayu Yustina said the GDP target would be difficult to achieve, considering the ongoing uncertainties in the external situation.
