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Stable economy boosts capital inflows but global pressure remains: World Bank
Low tax compliance may jeopardize the government's goal to lift the country’s tax revenue from 10 percent to 16 percent of GDP by 2030, according to the global financial institution.
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The World Bank headquarters is seen on Jan. 10, 2022, in Washington, DC. (AFP/Stefani Reynolds)
I
ndonesia’s stable macroeconomic conditions have bolstered capital inflows and lowered financing costs, even as global pressures mount, according to a new World Bank report.
Foreign direct investment was also expected to return to the pre COVID-19 level and remain the largest source of external finance, according to the December update of the bank’s Indonesia Economic Prospects report.
The World Bank projects that Indonesia’s economy will accelerate slightly to grow by 5.1 percent in 2025 and in 2026, driven by stronger consumption and the rollout of national priority programs. It projects growth of 5 percent for this year.
“The outlook is subject to balanced risks heightened by rising geopolitical tensions, trade tensions between United States and China, which both are the largest trading partner of Indonesia […] and a delay in policy reforms,” said Wael Mansour, World Bank senior economist, at the report’s presentation in Jakarta on Monday.
Read also: Miracle needed for RI to become advanced economy by 2045: World Bank
Prudent government policies have strengthened the country’s macroeconomic stability, Mansour continued, allowing Bank Indonesia (BI) to ease monetary policy, boost credit growth and stabilize the rupiah — even outpacing other emerging markets in exchange rate stability.
Market confidence in Indonesia has also strengthened, he added, as evidenced by a narrowing spread between Indonesian and US sovereign bonds since 2023.
