T

he economy has continued to perform positively over the past few years, but is facing a new reality that requires further reform to support growth.

In a statement issued on Thursday, the International Monetary Fund (IMF) lauded Indonesian financial authorities that it said had navigated through the changing currents in the international economy.

“Growth remains strong, inflation has dropped significantly and the current-account deficit has been contained. These achievements underpin a favorable economic outlook,” the IMF wrote in the statement after an IMF team completed its 2016 Article IV Mission to Indonesia.

During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials.

The IMF projects growth in 2016 to stand at 5 percent, supported by strong private consumption. The growth rate will then climb slightly to 5.1 percent in 2017 on the back of private consumption and a gradual pickup in private investment as a response to a recovery of commodity prices and lower interest rates.

Inflation is estimated to rise to just above the middle of the official target band—3 to 5 percent—at the end of 2017 due to better targeting of electricity subsidies. For this year, the IMF forecasts inflation to hover at around 3.3 percent.

However, risks remain that are mostly external, according to the IMF.

Uncertainty over the policies of the next US administration, tighter global financial conditions, slower-than-expected growth in China, a faster pace of monetary tightening in the US and a renewed fall in commodity prices are all factors that can turn the situation around.

Risks are present domestically as well, such as smaller fiscal buffer from tax revenue shortfalls or higher domestic interest rates as a result of tighter global financial conditions.

The government hopes to achieve Rp 1.49 quadrillion (US$109.79 billion) in next year’s tax revenue, increasing moderately by 13 to 15 percent from the expected tax revenue realization in 2016.

It previously acknowledged that the global situation would remain challenging to the economy, translating into a more realistic tax revenue outlook.

The IMF said it agreed with the authorities on the need to continue structural reform to support private investment and growth.

It claims the government’s fiscal strategy—broadening the revenue base and raising growth-enhancing expenditures, while making them more efficient within the 3 percent of gross domestic product (GDP) fiscal deficit rule—will anchor stability and support medium-term inclusive growth.

It also lauds Bank Indonesia’s current stance on monetary policy, including its recent decision to keep the policy rate unchanged, to allow the exchange rate and government bond yields to adjust and to ensure the orderly operation of markets.

Meanwhile, JPMorgan chief economist for emerging markets Jahangir Aziz said rising global uncertainty due to the unexpected result of the US presidential election had put monetary policy across the emerging markets under pressure, as investors were still in wait-and-see mode in regard to the US’ upcoming fiscal policy.

Domestically, Indonesia still has room to maintain growth next year, supported by the government’s higher infrastructure spending in the regions.

The government has allocated Rp 387.3 trillion for infrastructure in the 2017 state budget and the State Budget Law itself stipulates that regions must allocate a minimum of 25 percent of their budget for infrastructure development.

“With a shift in composition of spending to infrastructure rather than subsidies, the links to the rest of the economy are larger, so the impact on growth is also bigger. I think that’s probably the right thing to do,” he said.