TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Indonesian economy enters 2022 with more resilience
A number of positive indicators suggest that the Indonesian economy will be more resilient and less vulnerable to market shocks and global market volatilities.
Change Size
The government locked down the emergency COVID-19 hospital in the former athletes village in Kemayoran, Central Jakarta, on Dec. 17 in an effort to prevent the spread of the Omicron variant of the coronavirus, after a cleaning service worker in the facility tested positive for the new strain. (Antara/Sigid Kurniawan)
T
he Indonesian economy shrunk by 2.2 percent in 2020 as a result of the COVID-19 pandemic, the first contraction since 1998. But this seemed shorter-lived and milder than the declines in Malaysia (5.6 percent), Thailand (6.1 percent), the Philippines (9.5 percent), Singapore (5.4 percent) and India (8 percent).
By 2021, the economy was on its way to growth. Gross domestic product (GDP) growth in the 9 months to September 2021 was 3.2 percent with growth for the whole year estimated at 3.6 to 3.7 percent. Government spending and gross fixed capital formation were the main drivers of growth, growing at 3.6 percent respectively. Consumption grew 1.5 percent, well below the 5 percent average in the years prior to pandemic. In the third quarter of 2021, out of the 3.5 percent GDP growth year-on-year, consumption contributed a meagre 0.55 percent. Given the large share of consumption in the GDP, it will be difficult to achieve 5 percent growth as long as consumption growth is depressed.
The realized budget to November 2021 showed strong growth in government revenue of 19.4 percent to Rp 1.7 quadrillion (US$121.4 billion). Both tax revenue and non-tax revenue grew strongly, with total receipts already exceeding the 2021 target by 28 percent due to higher commodity prices, especially oil, coal and palm oil. Coal prices were above $200 per ton, more than double the year before. Indonesian Crude Oil Prices (ICP) rose 55 percent to $85 per barrel, well above the $45 used as an assumption in the 2021 budget.
Total expenditure was Rp 2.3 quadrillion, about the same as last year. Higher spending on infrastructure and procurement (mainly for healthcare needs) was offset by lower spending for social aid and transfers to regions. The government believed that as the infection rate had declined sharply due to the higher level of vaccination and mobility restrictions, some social aid programs and fiscal stimulus could be phased out.
But the disbursement by regional administrations of funds transferred from the central government remained low due to inadequate institutional capacity. This will hinder recovery in the regions because regional administrations depend on the central government for about 75 percent of their budget.
With strong revenue growth and flat spending, the budget deficit in November was 3.6 percent of GDP. It is likely the deficits will have been below the projected 5.8 percent of GDP as of the end of the year.
The recovery is also underpinned by a robust balance of payments. The current account in the third quarter of 2021 achieved a surplus of $4.5 billion, the highest in history, driven by a huge surplus in the merchandise balance of $15 billion, which was about twice the previous quarterly average.
