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Bank Indonesia strategy for perfect storm 2023
The fiscal authority can use the funds to boost economic growth and to provide social aid funds for people affected by the global recession.
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People in need: Residents of the Cibeunying Kidul area of Bandung bring home social assistance packages from the President on May 4, 2022. The assistance was part of the social protection program to mitigate the impact of the COVID-19 pandemic. (Antara/Raisan Al Farisi)
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ext year Indonesia will face a perfect storm in the form of a global economic slowdown, high inflation and geopolitical tension. In its World Economic Outlook October 2022 report, the International Monetary Fund (IMF) again lowered its 2023 global economic growth projection to 2.7 percent, from 2.9 percent in July 2022 and 3.8 percent in January 2022.
The IMF also predicted that 31 countries representing 43 percent of the world economy would experience an economic recession in 2023. Other prominent international institutions such as the World Bank and OECD conveyed the same message.
The Indonesian economy has been affected through both trade and financial channels. The impact through the trade channel can be seen in massive worker layoffs in textile and footwear companies due to the weakening global demand. Meanwhile, the impact through the financial channel can be seen in the capital outflows as foreign-portfolio investors unloaded their rupiah assets as government bonds.
However, Indonesia does not need to worry too much. Commodity and energy prices are likely to remain moderately high, although lower than in 2022 but higher than in 2021, as projected by the World Bank (2022). Windfall profits will still support state revenue, although not as large as this year. The fiscal authority can use the funds to boost economic growth and to provide social-aid funds for people affected by the global recession.
On the other hand, the Indonesian economy still benefits slightly from being less intensively connected to the global economy as it is not yet fully part of the global value chain. Global production disruptions have had relatively little impact on domestic economic activity. Meanwhile, the growth of the Indonesian economy is still mostly driven by domestic consumption. This situation has made Indonesia's economy relatively resilient to various crises overseas. All these factors will make the Indonesian economy remain strong next year, even though it will grow slower than in 2022. In short, Indonesia will not experience a recession.
Bank Indonesia (BI) Governor Perry Warjiyo said at the Bank Indonesia Annual Meeting (PTBI), held in a hybrid manner on Nov. 30 that Indonesia's economic growth is still solid, predicted at the range of 4.5-5.3 percent in 2023 and 4.7-5.5 percent in 2024. Likewise, inflation is increasingly under control and predicted to decline and return to the target of 3.0 ± 1 percent in 2023 and 2.5 ± 1 percent in 2024.
Meanwhile, the country’s external resilience also remains stable. The current account is projected to book a 0.4 percent surplus or 0.4 percent deficit of GDP in 2023, followed by a 0.2 percent surplus -- 0.6 percent deficit in 2024. Bank-credit disbursement will grow in the range of 10-12 percent in 2023 and 2024. Digital economy and finance, considered the engine of new economic growth, will also surge in 2023 and 2024, with the value of e-commerce transactions predicted at between Rp 572 trillion (US$38 billion) and Rp 689 trillion, electronic money between Rp 508 trillion and Rp 640 trillion and digital banking in the range of Rp 67 quadrillion and Rp 87 quadrillion.
