Dzulfiqar Fathur Rahman
The Jakarta Post
Jakarta / Sat, March 20, 2021 / 08:30 am
Organization for Economic Cooperation and Development (OECD) secretary-general Angel Gurría (left) and Finance Minister Sri Mulyani Indrawati attend the release of an OECD survey in Nusa Dua, Bali, on Oct. 10, 2020, on the sideline of the International Monetary Fund–World Bank (IMF-WB) Annual Meeting.(Antara/Nicklas Hanoatubun)
The Organization for Economic Cooperation and Development (OECD) recently upgraded its economic growth projections for Indonesia on the back of an expected rebound in consumer spending and exports.
In its latest outlook in March, the OECD raised its gross domestic product (GDP) growth projection by 0.9 percentage points to 4.9 percent for this year and by 0.3 percentage points to 5.4 percent for 2022.
“Looking ahead, the OECD projects a return to almost 5 percent growth in 2021 with momentum building up in the coming years,” Ángel Gurría, the outgoing secretary-general of the OECD, said in a virtual presser on Thursday.
“Now, the important factor is the global trade revival, which will help Indonesian exporters, [spending] pick up.”
The upgraded outlook came after Indonesia raised its national economic recovery (PEN) budget by 20.6 percent year-on-year (yoy) to Rp 699.4 trillion (US$48.36 billion) in 2021 as the country rolls out its COVID-19 vaccination program and extends other stimulus programs.
The government is aiming to inoculate 181 million people by March 2022 as part of a free vaccination drive that began in January. Funds have also been allocated for electricity subsidies, cash transfers and tax breaks, among other initiatives, to spur household spending, which makes up over half of Indonesia’s GDP.
The upgraded outlook also came after Indonesia booked a $2 billion trade surplus in February as exports rose 8.56 percent yoy to $15.27 billion, driven by recovering commodity prices and by rebounding global demand, particularly from China, the United States and Japan. Indonesia is a big exporter of palm oil, coal and metals, among other commodities.
The OECD’s projection was slightly more optimistic than the 4.8 percent projection from the International Monetary Fund’s January World Economic Outlook. But the IMF laid out a more optimistic outlook than the OECD for next year, expecting Indonesia’s economy to grow by 6 percent.
The government itself expects the country’s GDP to grow between 4.5 percent and 5.3 percent in 2021, with a point estimate at 5 percent.
Indonesia’s economy showed signs of recovery in the fourth quarter of last year when its GDP contracted 2.19 percent yoy, which is less severe than the contraction in the previous two quarters, according to data from Statistics Indonesia (BPS).
While Indonesia performs better than the average Group of 20 (G20) countries, last year’s economic contraction was “a pretty big number” compared with the precrisis annual growth rates of around 5 percent, according to Gurría.
The OECD secretary-general said the government reacted decisively in response to the pandemic by temporarily bending fiscal rules without putting public finance at risk.
Indonesian lawmakers lifted its usual budget deficit ceiling of 3 percent of GDP last year in enabling the government to finance recovery programs. Last year’s deficit reached 6.03 percent of the country’s GDP, which was slightly below the expected 6.34 percent deficit.
For this year, the budget deficit is expected to stand at around 5.7 percent of GDP. The government is planning to bring the deficit back to the normal ceiling by 2023.
“Indonesia has already made it very clear that the emergency law responding to COVID allows us to have a deficit above 3 percent — but in 2021 and 2022. Even though we need to continue supporting the recovery of the economy, we also need to start consolidating our fiscal policy at the same time,” said Finance Minister Sri Mulyani Indrawati.
OECD economist Andrea Goldstein recommended that the government plan for fiscal consolidation in the medium run without removing the stimulus abruptly or prematurely.
“So, in other words, the focus that authorities put on negating the impact of the pandemic is very much correct and should be prolonged as long as the economic and social situation hasn’t improved,” he said.
