IMF Executive Board Concludes 2023 Article IV Consultation with Indonesia

June 25, 2023

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Indonesia on May 22, 2023.

Indonesia’s forward-looking, and well-coordinated policies helped it close out the highly challenging global environment of 2022 with healthy growth, falling inflation, and a stable and profitable financial system. With the recovery underway, policies have been geared toward restoring the pre‑pandemic macroeconomic policy frameworks and accelerating structural reforms, to reinforce macroeconomic stability and build policy space against future shocks. Going forward, Indonesia is well-placed for continued strong and inclusive growth, supported by broad-based reforms to promote an enabling business environment, diversify the economy, and mitigate climate change.

The Indonesian economy performed strongly in 2022, growing by 5.3 percent, driven by a recovery in domestic demand and solid export performance and amid high international commodity prices. Growth is projected to moderate slightly to 5 percent in 2023, given tighter policy settings and the normalization of commodity prices. Inflation, having peaked at 6 percent last year, is forecast to return to Bank Indonesia’s target range (3±1 percent) in the second half of 2023. The current account balance stood at 1.0 percent of GDP in 2022, on the back of high commodity prices, and is projected to turn into a small deficit in 2023. Risks are broadly balanced in the near-term, but a highly uncertain global economic environment continues to cloud the outlook.

Executive Board Assessment[2]

Executive Directors noted that the Indonesian economy is performing strongly, inflationary pressures are moderating, and macroeconomic policies have been appropriately returned to their pre-pandemic settings. The outlook remains favorable, and risks are broadly balanced, but with considerable uncertainty related to the external environment.

Directors welcomed the authorities’ achievement of the 3 percent deficit ceiling one year earlier than envisaged and commended their commitment to fiscal discipline. Directors emphasized the importance of a concrete medium-term fiscal strategy going forward, including efforts to increase revenue mobilization, implement energy subsidy reform and expand social protection.

Directors noted that monetary policy has been tightened appropriately to preserve price stability. However, they emphasized the need for monetary policy to act decisively if inflation surprises on the upside. Directors also welcomed the end of the central bank primary market purchases of government bonds as scheduled.

Directors noted that the Indonesian financial sector remains resilient, but intensive supervision remains important to tackle vulnerabilities related to higher interest rates and the sovereign bank nexus. They agreed that crisis-related regulatory relief measures should not be extended when they expire in March 2024 to reduce risks, including those of delayed loss recognition.

Directors observed that Indonesia has ample policy space to respond to adverse shocks. They agreed that the exchange rate should play a shock-absorbing role, noting that the use of foreign exchange intervention may be appropriate under certain shocks and circumstances.

Directors welcomed the recently adopted legislation on job creation and the financial sector, while noting the importance of prompt implementation and continued reform momentum, to promote an enabling business environment, enhance financial deepening, and mitigate the scarring effects of the pandemic.

Directors noted Indonesia’s diversification strategy focusing on downstream activities from its raw commodities, such as nickel. They welcomed Indonesia’s ambitions to increase value added in exports, attract foreign direct investment, and facilitate transfer of skills and technology, and noted that policies should be informed by further cost-benefit analysis, and designed to minimize cross-border spillovers. In that context, Directors called for considering phasing out export restrictions and not extending the restrictions to other commodities.

Directors welcomed the steps taken by Indonesia to limit greenhouse gas emissions and deforestation. They noted that energy subsidy reform and carbon pricing are critical to facilitate a green transition, but also agreed that the transition needs to be managed carefully and that mobilizing private financing is critical.




[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

Table 1. Indonesia: Selected Economic Indicators, 2020–25

2020

2021

2022

2023

2024

2025

Proj.

Proj.

Proj.

Real GDP (percent change)

-2.1

3.7

5.3

5.0

5.1

5.0

Domestic demand

-3.8

2.9

3.8

4.6

5.0

5.1

Of which:

Private consumption 1/

-2.7

2.0

4.9

4.9

5.1

5.1

Government consumption

2.1

4.2

-4.5

1.0

3.5

3.5

Gross fixed investment

-5.0

3.8

3.9

5.0

5.4

5.4

Change in stocks

-0.7

0.1

0.1

0.0

0.0

0.0

Net exports 2/

1.5

-0.4

0.8

0.6

0.4

0.3

Statistical discrepancy 2/

0.1

1.4

0.9

0.0

0.0

0.0

Output gap (in percent)

-3.4

-2.8

-1.1

-0.2

0.0

0.0

Saving and investment (in percent of GDP)

Gross investment 3/

32.3

31.4

29.7

29.7

29.8

29.9

Gross national saving

31.9

31.7

30.7

29.5

29.1

28.8

Prices (12-month percent change)

Consumer prices (end period)

1.7

1.9

5.5

3.2

2.8

2.7

Consumer prices (period average)

2.0

1.6

4.2

4.4

3.0

2.7

Public finances (in percent of GDP)

General government revenue

12.5

13.6

15.2

14.5

14.5

14.6

General government expenditure

18.6

18.2

17.5

17.1

17.0

17.0

Of which: Energy subsidies

0.7

0.8

0.9

0.8

0.5

0.4

General government balance

-6.1

-4.6

-2.4

-2.6

-2.5

-2.4

Primary balance

-4.1

-2.5

-0.4

-0.6

-0.5

-0.4

General government debt

39.7

41.1

40.1

39.3

39.0

38.7

Money and credit (12-month percent change; end of period)

Rupiah M2

12.5

14.0

8.4

7.6

6.6

6.3

Base money

0.4

19.3

23.9

8.6

7.4

7.8

Claims on private sector

-0.4

6.1

10.1

10.0

9.8

9.6

One-month interbank rate (period average)

4.5

3.6

4.2

Balance of payments (in billions of U.S. dollars, unless otherwise indicated)

Current account balance

-4.4

3.5

13.2

-3.8

-11.2

-17.1

In percent of GDP

-0.4

0.3

1.0

-0.3

-0.7

-1.0

Trade balance

28.3

43.8

62.7

42.1

37.8

36.0

Of which: Oil and gas (net)

-5.4

-13.0

-24.8

-25.1

-21.3

-20.5

Inward direct investment

18.6

21.1

22.0

26.3

29.3

31.5

Overall balance

2.6

13.5

4.0

5.3

9.9

6.2

Terms of trade, percent change (excluding oil)

1.4

12.5

21.5

-9.5

-1.9

-0.8

Gross reserves

In billions of U.S. dollars (end period)

135.9

144.9

137.2

142.5

152.5

158.6

In months of prospective imports of goods and services

7.5

6.4

5.9

5.5

5.3

5.0

As a percent of short-term debt 4/

209

244

206

208

207

198

Total external debt 5/

In billions of U.S. dollars

416.9

414.0

396.8

403.8

419.1

441.4

In percent of GDP

39.2

34.9

30.1

29.0

27.8

27.1

Exchange rate

Rupiah per U.S. dollar (period average)

14,529

14,297

14,874

Rupiah per U.S. dollar (end of period)

14,050

14,253

15,568

Memorandum items:

Jakarta Stock Exchange (12-month percentage change, composite index)

-5.1

10.1

4.1

Oil production (thousands of barrels per day)

806

803

800

797

794

791

Nominal GDP (in trillions of rupiah)

15,443

16,977

19,588

21,459

23,229

25,048

Sources: Data provided by the Indonesian authorities; Bloomberg L.P.; and IMF staff estimates and projections.

1/ Includes NPISH consumption.

2/ Contribution to GDP growth (percentage points).

3/ Includes changes in stocks.

4/ Short-term debt on a remaining maturity basis.

5/ Public and private external debt.

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