State of the Indonesian Economy

- Jumat, 24 Februari 2023 | 19:35 WIB
State of the Indonesian Economy
State of the Indonesian Economy

DEPOK (eNBe Indonesia) - Indonesian economy might not enjoy commodity windfalls like last year, but there are some positives to maintain a relatively strong growth vis-a-vis major economies.

Simultaneous elections next year will likely lead to robust consumption this year and the next thanks to higher spending from political parties and their candidates.

Finance Minister Sri Mulyani Indrawati revealed on Thursday (February 23) that Indonesia’s economy in 2023 and 2024 will be maintained strong, benefited from the election cycles. 

Sri Mulyani conveyed that it is certain that the level of public consumption will increase ahead of the 2024 Election, which means it will have a good impact on the economy. 

“From each election, the level of public consumption has increased quite drastically. This is a good thing for the economy,” she said.

In 2022, when it was starting to recover from the Covid-19 pandemic, Indonesia benefited from commodity windfalls.

Entering 2023, the global economic trend is weakening. Thus, the government must be very careful in managing sources of growth that come from the domestic side, especially consumption and investment.

Indonesia maintained its economic growth at 5.3% last year, including the highest among the G20 and Asean countries. Government has set budget of Rp21.86 trillion for the 2024 Election, and this will boost the consumption.

Domestic tourism and transportation will likely grow higher this year, some for old reasons like a free movement of people during Lebaran holidays and new reasons like trying out high speed train (HST) Jakarta-Bandung or the light-rail transit (LRT) connecting Bekasi-Cawang-Cibubur-Kuningan.

Tens of new toll roads will also be operational in the coming months, encouraging people to move more.

The new capital city (IKN) Nusantara project can also boost domestic economy. The State Budget for the project increases significantly this year, while private sector might start to jump in later in the second half.

Amid global economic slowdown and recession threat, Indonesia’s economy is resilient as reflected on higher state revenue until January 2023, which grew 48.1% year on year (y/y) to Rp232.2 trillion, a 9.4% of this year’s target (Rp2,463 trillion).

State spending also rose 11.2% y/y to Rp141.4 trillion in January, a 4.6% of this year’s target (Rp3,061 trillion), so the budget surplus was Rp90.8 trillion.

While the central bank (Bank Indonesia/BI) said the inflation is maintained, and BI will control it at targeted 3.0%±1% this year. The Rupiah continues to appreciate, thus supporting economic stability.

That said, the stronger Rupiah is in response to foreign capital inflows to domestic financial markets given the positive perception of investors concerning the promising domestic economic outlook, accompanied by maintained stability, attractive yields on domestic financial assets for investment and less global financial market uncertainty.

Liquidity conditions in the banking industry and economy remain ample to increase lending/financing and sustain the economic recovery, while BI was preserving the stability.

Also, Indonesia’s Balance of Payments (BOP) in the fourth quarter (Q4) of 2022 remained solid and contributed to bolstering external resilience.

For the whole year of 2022, the balance of payments recorded a surplus given strong export performance which bolstered external sector resilience.

Then, BI said Indonesia’s economic growth is projected to remain strong, with potential gains driven by higher exports and improving domestic demand, primarily private consumption.

In 2023, BI projects economic growth with a bias towards the upper end of the 4.5-5.3% range.

Export performance could potentially exceed the previous projection due to the positive impact of economic gains in China.

High household consumption growth is projected in response to growing economic confidence and greater public mobility after the Government ended community activity restrictions (PPKM).

Meanwhile, investment is improving given the promising business outlook, an influx of foreign direct investment (FDI) as well as the ongoing completion of national strategic projects (PSN). 

There might be corrections in tech startups, but some higher value of investments in metal processing will start this year, including nickel-to-EV and aluminium.***

Editor: Adrianus Nulangi Madaala



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