Fiscal reforms bolster Indonesia’s economy, says World Bank

26 Oct 16

Indonesia can expect GDP growth of 5.1% this year, thanks in part to its improved fiscal management, the World Bank has said.

A tax amnesty programme had seen higher-than-expected revenue, in turn easing fiscal risks and enabling the government to increase capital spending, it said.

In the latest edition of its , the bank warned though that weaker than expected global growth and volatility in global financial markets posed risks to the country, which is southeast Asia’s largest economy.

Rodrigo Chaves, World Bank country director for Indonesia, said: “Improved fiscal management, sounder public policy and structural reforms, including timely responses on food prices, are yielding positive outcomes.

“Risks have declined and some indicators improved. Looking forward, we are optimistic that ongoing efforts to develop tourism and manufacturing will result in more jobs, boost export earnings, and further support growth.” 

Indonesia’s poverty rate fell by 0.4 percentage points in the first quarter of 2016, the largest year-on-year decline in the past three years, following stabilisation of rice prices and expansion of social assistance programmes.

Although inequality remained high, the Gini coefficient – which measures this – fell by 1.1 points to 39.7, the greatest annual decline since the Asian financial crisis of 1997-98. 

The bank also highlighted the potential of Indonesia’s tourism sector to unlock private investment and create jobs; its tourism minister has set a target of attracting $10bn in private investment for 10 tourist destinations by 2019.

This report followed last week’s Organisation for Economic Co-operation and Development’s (OECD) , which concluded that low levels of public spending and tax revenue were undermining the quality of social services and exacerbating infrastructure gaps.

October also saw the Asian Development Bank approve a country partnership strategy with Indonesia for 2016-19 to promote infrastructure investment and sustainable economic growth.

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