T

he Asian Development Bank (ADB) has downgraded its forecast for Indonesia’s economic growth for this year and 2017, taking into account the subdued pickup of investments despite the government’s efforts to spur the economy with a series of stimulus packages.

Since taking office in 2014, President Joko “Jokowi” Widodo has issued 13 economic stimulus packages aimed at easing hurdles that have long dampened the country’s economy, ranging from regulatory bottlenecks and contentious wage standards to convoluted tax obligations.

Notwithstanding, the grow in investment in Southeast Asia’s largest economy “has been more gradual than earlier anticipated”, ADB said in a report on Indonesia’s economic outlook published on Tuesday.

“The 13 reform packages are still in various stages of implementation and the private responses are not as strong and as robust as we hoped,” ADB country director for Indonesia, Steven R. Tabor, told a press briefing on Tuesday.

The Philippines-based institution has trimmed Indonesia’s 2016 economic growth forecast to 5 percent from 5.2 percent on the back of sluggish public and private investment, as well as because of weak net exports gauged during the first six months of the year. It also revised down next year’s growth forecast to 5.1 percent from 5.5 percent.

Investments, along with private consumption, are seen as the key factors to spur Indonesia’s economy, as the two contributed the most to the growth of the country’s gross domestic product (GDP) in the first half of the year, ADB data show.

ADB believes that public investment will remain subdued in the remaining months of the year amid government spending cuts resulting from an expected state revenue shortfall. The government has said it was likely that the full-year achievement would be about 83 percent of the target.

The country’s trade data, meanwhile, has been forecasted to remain weak until the end of the year because of sluggish global demand and low commodity prices, “with some improvement seen for 2017”, the report said.

The Central Statistics Agency (BPS) previously reported that Indonesia’s total exports went down by 10.61 percent year-on-year (yoy) to US$91.73 billion in the January to August period, posing challenges to the country to reach beyond last year’s figure of $150 billion.

“In this current global and regional economic environment, a 5 percent growth is quite respectable,” Tabor said, referring to ADB’s 2016 forecast.

Tabor said the implementation of Jokowi’s policy reforms would be the key for the country to see better economic conditions next year, although only 0.1 higher than this year’s estimate. It is also hoped that there would be a “modest upturn” in global commodity prices to bolster investments and incomes in 2017.

Tabor said that the government had to keep an eye on the looming risks that could hamper the country’s economic growth, such as a potential cut of government spending and a prolonged weak labor market.

The ADB said in its report that Indonesia could see further cuts of government spending if revenues from Jokowi’s flagship tax amnesty policy, expected to broaden the country’s tax base and state revenues, “falls short of expectations”.

Tabor did not make any specific predictions about whether the government could hit its target for the amount of funds generated from the program, but underscored that its implementation would be likely affected by what he calls a “displacement effect”, in which tax officers have limited time to do their primary job of collecting taxes because they have to focus on running the amnesty.

After kicking off in July, the nine-month tax amnesty program is expected to collect more than Rp 165 trillion ($12.5 billion) in penalty payments and to partly plug the widening state budget deficit amid a global economic slowdown.

The program yielded sluggish results during its first weeks of implementation, with redemption payments amounting to Rp 13 trillion by Sept. 15, according to the tax office’s official website. The figure, however, rose in subsequent days until it reached Rp 53.4 trillion by Tuesday evening.

Tax office spokesperson Hestu Yoga Saksama attributed the positive progress to increasing public participation in the program. Many taxpayers, he said, were rushing to submit applications before the first phase of the tax amnesty ends on Sept. 30. “Their participation boosts the amount of declared assets and redemption payments,” he told The Jakarta Post over the weekend.

Meanwhile, ADB Indonesia deputy country director Sona Shrestha said the weaknesses in the labor market could jeopardize the growth of private consumption, with the institution’s report showing that Indonesia saw a decline in the number of jobs created yoy in February by almost 200,000. (mos)