IMF Executive Board Concludes 2019 Article IV Consultation with Indonesia
IMF News, July 31, 2019
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- Published: July 31, 2019
Economic performance in 2018
- Real GDP growth stabilized at above 5 percent.
- Domestic demand was robust and offset a decline in net exports.
- Credit growth recovered and supported economic activity.
- Inflation eased to around 3 percent, the lower half of the official target band (3.5±1percent); core inflation is stable at 3 percent.
- The current account deficit widened to 2.98 percent of GDP in 2018 (1.6 percent in 2017), mainly due to lower commodity exports and higher infrastructure-related imports.
- The authorities eliminated the primary deficit in 2018.
Outlook and IMF staff projections
- Real GDP growth is projected to remain stable at 5.2 percent in 2019 and 2020, and rise to the level of potential (5.3 percent) over the medium term.
- Credit growth is projected to be about 12 percent, supported by strong bank balance sheets and continued economic growth.
- Inflation is projected to remain within the target band.
- The current account deficit is projected to continue its gradual decline to 2.6 percent of GDP over the medium term.
- The fiscal deficit is projected to remain constant at 1.8 percent of GDP.
Risks to the outlook
- Risks are tilted to the downside and are mainly external:
- Rising trade tensions.
- Sharp tightening of global financial conditions.
- Weaker-than-expected growth in China.
- Large swings in commodity prices, especially higher oil prices that would translate into higher current account deficit.
- Upside scenario:
- The start of the Administration’s second term could lead to intensified reform efforts, boosting confidence, investment, and growth.
Executive Board assessment and recommendations
- Directors commended the authorities’ policy response to 2018 external headwinds and noted the favorable outlook while urging vigilance against risks, including capital flow reversals given Indonesia’s reliance on external financing.
- Structural reform package needed to achieve higher potential growth, including:
- Higher domestic revenue mobilization.
- Financial deepening.
- Complementary reforms in human capital, infrastructure, and labor and products markets.
- Near‑term policy mix:
- Appropriate focus on protecting macroeconomic and financial stability, safeguarding buffers, and addressing vulnerabilities.
- Support for maintaining a neutral fiscal stance.
- Close assessment of macroprudential policies to ensure financial system stability.
- With inflation within the target band, scope for cautious relaxation of the monetary policy stance, unless significant capital account pressures reemerge.
- Encourage allowing the exchange rate to move in line with market forces, with FX intervention limited to preventing disorderly market conditions.
- Fiscal and revenue policy:
- Welcome for protecting fiscal buffers and improving quality of spending by rebalancing expenditure toward infrastructure, education, health, and social safety nets.
- Noted that government revenues remain below peer countries and are insufficient to finance development goals.
- Highlighted critical need to implement a medium‑term revenue strategy that combines well‑sequenced and prioritized tax policy and administration reforms to finance priority spending and structural reforms and lessen reliance on external financing.
- Monitor risks and contingent liabilities from state‑owned enterprises and public‑private partnerships.
- Structural and governance reforms:
- Commended efforts to improve infrastructure, streamline regulations, and reform education and health sectors.
- Encouraged expanding efforts and addressing remaining structural impediments to higher growth, including strengthening governance and the business environment.
- Priority actions: improving human capital, increasing female labor participation, easing restrictions to foreign direct investment, and streamlining labor and product market regulations.
- Financial sector oversight and crisis management:
- Welcomed progress in strengthening frameworks in line with FSAP recommendations.
- Encouraged focus on FSAP-identified areas needing improvement: clarifying institutional mandates; improving supervision of nonbank financial institutions and financial conglomerates; strengthening the legal framework for financial oversight and crisis management; and enhancing crisis management frameworks.
- Continued strengthening of the AML/CFT regime was also encouraged.
Selected economic indicators and key statistics (2014–2020, as presented)
- Real GDP (percent change): 2014: 5.0; 2015: 4.9; 2016: 5.1; 2017: 5.2; 2018: (not listed in table but described above); 2019 Proj.: 5.2; 2020 Proj.: 5.2
- Domestic demand (percent change): 2016: 6.3; 2017: 5.4
- Private consumption 1/: 2014: 5.3; 2015: 4.8
- Government consumption: 2016: 1.2; 2017: -0.1; 2018: 2.1; 2019 Proj.: 4.5
- Gross fixed investment: 2016: 4.4; 2017: 6.2; 2018: 6.7; 2019 Proj.: 5.9
- Change in stocks 2/: 2016: 0.5; 2017: -0.6; 2018: 0.2; 2019 Proj.: 0.7; 2020 Proj.: 0.0
- Net exports 2/: 2014: -0.2; 2015: 0.9; 2016: 0.1; 2017: 0.3; 2018: -1.0
- Gross investment 3/ (percent of GDP): 2014: 34.6; 2015: 34.1; 2016: 33.9; 2017: 33.7; 2018: 34.5; 2019 Proj.: 34.7; 2020 Proj.: 34.9
- Gross national saving (percent of GDP): 2014: 31.5; 2015: 32.0; 2016: 32.1; 2017: 31.4; 2018: 31.8
- Consumer prices (end period, 12-month percent change): 2014: 8.4; 2015: 3.4; 2016: 3.0; 2017: 3.6; 2018: 3.1
- Consumer prices (period average, 12-month percent change): 2014: 6.4; 2015: 3.5; 2016: 3.8; 2017: 3.2
- General government revenue (percent of GDP): 2014: 16.5; 2015: 14.9; 2016: 14.3; 2017: 14.1; 2018: 14.8
- General government expenditure (percent of GDP): 2014: 18.6; 2015: 17.5; 2016: 16.8; 2017: 16.6; 2018: 16.7
- Energy subsidies (percent of GDP, part of expenditure): 2018: 1.0
- General government balance (percent of GDP): 2014: -2.1; 2015: -2.6; 2016: -2.5; 2017: -1.8
- Primary balance (percent of GDP): 2016: -0.9; 2017: -1.2
- General government debt (percent of GDP): 2014: 24.7; 2015: 27.0; 2016: 28.0; 2017: 29.4; 2018: 30.1; 2019 Proj.: 30.2; 2020 Proj.: 29.9
- Rupiah M2 (12-month percent change; end of period): 2014: 13.3; 2015: 9.2; 2016: 11.7; 2017: 9.6; 2018: 5.8
- Base money (12-month percent change; end of period): 2014: 11.6; 2015: 9.7; 2016: -1.5
- Private Sector Credit (12-month percent change; end of period): 2014: 11.8; 2015: 10.3; 2016: 7.7; 2017: 8.7; 2018: 12.0; 2019 Proj.: 12.3; 2020 Proj.: 12.4
- One-month interbank rate (period average): 2014: 7.5; 2015: 7.1; 2016: 6.5; 2017: 5.6
- Current account balance (in billions of U.S. dollars): 2014: -27.5; 2015: -17.5; 2016: -17.0; 2017: -16.2; 2018: -31.1; 2019 Proj.: -32.4; 2020 Proj.: -34.7
- Current account balance (percent of GDP): 2014: -3.1; 2015: -2.0; 2016: -1.6; 2017: -3.0; 2018: -2.9
- Trade balance (in billions of U.S. dollars): 2014: 7.0; 2015: 14.0; 2016: 15.3; 2017: 18.8; 2018: -0.4; 2019 Proj.: -4.6
- Oil and gas (net, in billions of U.S. dollars): 2014: -11.8; 2015: -5.7; 2016: -4.8; 2017: -7.3; 2018: -11.6
- Inward direct investment (in billions of U.S. dollars): 2014: 21.8; 2015: 3.9; 2016: 20.6; 2017: 22.0; 2018: 23.7
- Overall balance (in billions of U.S. dollars): 2014: 15.2; 2015: -1.1; 2016: 12.1; 2017: -7.1; 2018: 2.8
- Terms of trade, percent change (excluding oil): 2014: 1.4; 2015: 0.4; 2016: 1.3; 2017: 1.1
- Gross reserves (in billions of U.S. dollars, end period): 2014: 111.9; 2015: 105.9; 2016: 116.4; 2017: 130.2; 2018: 120.7; 2019 Proj.: 121.9; 2020 Proj.: 124.7
- Gross reserves (in months of prospective imports of goods and services): 2014: 8.1; 2015: 8.0; 2016: 7.6; 2017: 7.2; 2018: 6.0; 2019 Proj.: 5.7
- Gross reserves (as a percent of short-term debt 4/): 2014: 189; 2015: 191; 2016: 213; 2017: 237; 2018: 203; 2019 Proj.: 185; 2020 Proj.: 171
- Total external debt 5/ (in billions of U.S. dollars): 2014: 293.3; 2015: 310.7; 2016: 320.0; 2017: 352.5; 2018: 376.8; 2019 Proj.: 415.0; 2020 Proj.: 455.2
- Total external debt (percent of GDP): 2014: 32.9; 2015: 36.1; 2016: 34.3; 2017: 36.9; 2018: 37.7
- Rupiah per U.S. dollar (period average): 2014: 11,862; 2015: 13,391; 2016: 13,306; 2017: 13,383; 2018: 14,231
- Rupiah per U.S. dollar (end of period): 2014: 12,435; 2015: 13,788; 2016: 13,473; 2017: 13,568; 2018: 14,390
- Jakarta Stock Exchange (12-month percentage change, composite index): 2014: 22.3; 2015: -12.1; 2016: 20.0
- Oil production (thousands of barrels per day): 2014: 794; 2015: 800; 2016: 820; 2017: 815; 2018: 740; 2019 Proj.: 710
- Nominal GDP (in trillions of rupiah): 2014: 10,570; 2015: 11,526; 2016: 12,402; 2017: 13,587; 2018: 14,826; 2019 Proj.: 16,047; 2020 Proj.: 17,409
Press Release No. 19/305, July 31, 2019 — IMF Communications Department.
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