IMF Executive Board Concludes 2023 Article IV Consultation with Indonesia
IMF News, June 26, 2023
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- Published: June 26, 2023
Executive Summary and Board Assessment
- Indonesia closed out 2022 with "healthy growth, falling inflation, and a stable and profitable financial system."
- Policies focus on restoring pre‑pandemic macroeconomic policy frameworks and accelerating structural reforms to reinforce macroeconomic stability and build policy space against future shocks.
- Executive Directors: outlook favorable and risks "broadly balanced" but with "considerable uncertainty related to the external environment."
- Directors welcomed achievement of the 3 percent deficit ceiling one year earlier than envisaged and commended commitment to fiscal discipline.
- Directors emphasized the need for a concrete medium-term fiscal strategy, including:
- increase revenue mobilization,
- implement energy subsidy reform,
- expand social protection.
- Directors noted monetary policy has been tightened appropriately to preserve price stability and stressed the need for decisive action if inflation surprises on the upside.
- Directors welcomed the end of central bank primary market purchases of government bonds as scheduled.
- Directors noted the financial sector remains resilient but called for intensive supervision to tackle vulnerabilities related to higher interest rates and the sovereign-bank nexus.
- Directors agreed crisis-related regulatory relief measures should not be extended when they expire in March 2024 to reduce risks, including delayed loss recognition.
- Directors saw ample policy space to respond to adverse shocks and agreed the exchange rate should play a shock-absorbing role; foreign exchange intervention may be appropriate under certain shocks and circumstances.
- Directors welcomed recent legislation on job creation and the financial sector but stressed prompt implementation and continued reform momentum.
- On diversification and trade policy: Directors welcomed the focus on downstream activities (e.g., nickel), encouraged efforts to increase value added in exports and attract foreign direct investment, and called for policies to be informed by cost‑benefit analysis and designed to minimize cross-border spillovers; they also called for considering phasing out export restrictions and not extending restrictions to other commodities.
- On climate: Directors welcomed steps to limit greenhouse gas emissions and deforestation; noted energy subsidy reform and carbon pricing are critical to facilitate a green transition, while managing the transition carefully and mobilizing private financing is critical.
Recent Performance and Near-Term Outlook
- Real GDP growth:
- 2022: 5.3 percent
- Projected 2023: 5 percent
- Projected 2024: 5.1 percent
- Drivers of 2022 growth: recovery in domestic demand, solid export performance, and high international commodity prices.
- Inflation:
- Peaked at 6 percent in 2022
- Forecast to return to Bank Indonesia’s target range (3±1 percent) in the second half of 2023
- Current account balance:
- 2022: 1.0 percent of GDP (noted elsewhere in text as "The current account balance stood at 1.0 percent of GDP in 2022")
- Projected to turn into a small deficit in 2023
- Near-term risks: broadly balanced but clouded by a highly uncertain global economic environment.
Fiscal Policy and Public Finances
- Achievement highlighted: 3 percent deficit ceiling met one year earlier than envisaged.
- Public finances (selected items, percent of GDP):
- General government revenue: 2022: 15.2; 2023: 14.5; 2024: 14.6
- General government expenditure: 2022: 17.5; 2023: 17.1; 2024: 17.0
- Of which: Energy subsidies: 2022: 0.5
- General government balance: 2022: -2.4; 2023: -2.6; 2024: -2.5
- Primary balance: 2022: -0.5
- General government debt: 2022: 40.1; 2023: 39.3; 2024: 39.0; 2025: 38.7
- Policy recommendations:
- Implement a concrete medium-term fiscal strategy.
- Increase revenue mobilization.
- Implement energy subsidy reform.
- Expand social protection.
Monetary Policy and Financial Sector
- Monetary policy has been tightened appropriately; central bank ended primary market purchases of government bonds as scheduled.
- Directors emphasized readiness for decisive monetary action if inflation surprises upward.
- Financial sector status:
- Resilient and profitable.
- Need for intensive supervision to address vulnerabilities from higher interest rates and sovereign-bank nexus.
- Crisis-related regulatory relief measures should not be extended past March 2024.
Structural Reforms, Diversification, and Climate Policy
- Structural reform priorities:
- Promote an enabling business environment.
- Enhance financial deepening.
- Mitigate pandemic scarring through reforms.
- Diversification strategy:
- Focus on downstream activities from raw commodities (example: nickel).
- Aim to increase value added in exports, attract foreign direct investment, and facilitate transfer of skills and technology.
- Policies should be informed by cost‑benefit analysis and minimize cross-border spillovers.
- Consider phasing out export restrictions and avoid extending restrictions to other commodities.
- Climate-related policy:
- Steps taken to limit greenhouse gas emissions and deforestation are welcomed.
- Energy subsidy reform and carbon pricing are critical to a green transition.
- Transition needs careful management and mobilization of private financing.
Key Economic Indicators (selected figures from Table 1)
- Real GDP (percent change):
- 2020: -2.1
- 2021: 3.7
- 2022: 5.3
- 2023 (Proj.): 5.0
- 2024 (Proj.): 5.1
- Domestic demand (percent change):
- 2020: -3.8
- 2021: 2.9
- 2022: 3.8
- 2023 (Proj.): 4.6
- Private consumption (1/ includes NPISH consumption):
- 2020: -2.7
- 2021: 2.0
- 2022: 4.9
- Gross fixed investment:
- 2020: -5.0
- 2021: 3.9
- 2022: 5.4
- Output gap (in percent):
- 2020: -3.4
- 2021: -2.8
- 2022: -1.1
- 2023 (Proj.): -0.2
- Gross investment (in percent of GDP):
- 2020: 32.3
- 2021: 31.4
- 2022: 29.7
- 2023 (Proj.): 29.8
- Gross national saving (in percent of GDP):
- 2020: 31.9
- 2021: 31.7
- 2022: 30.7
- 2023 (Proj.): 29.5
- Consumer prices (end period, 12-month percent change):
- 2020: 1.7
- 2021: 1.9
- 2022: 5.5
- 2023 (Proj.): 3.2
- 2024 (Proj.): 2.8
- 2025 (Proj.): 2.7
- Money and credit (12-month percent change; end of period):
- Rupiah M2: 2020: 14.0; 2021: 8.4; 2022: 7.6; 2023 (Proj.): 6.6; 2024 (Proj.): 6.3
- Base money: 2020: 19.3; 2021: 23.9; 2022: 8.6; 2023 (Proj.): 7.4; 2024 (Proj.): 7.8
- Claims on private sector: 2020: 6.1; 2021: 10.1; 2022: 10.0; 2023 (Proj.): 9.8; 2024 (Proj.): 9.6
- Trade balance (in billions of U.S. dollars):
- 2020: 28.3
- 2021: 43.8
- 2022: 62.7
- 2023 (Proj.): 42.1
- 2024 (Proj.): 37.8
- 2025 (Proj.): 36.0
- Gross reserves (end period, in billions of U.S. dollars):
- 2020: 135.9
- 2021: 144.9
- 2022: 137.2
- 2023 (Proj.): 142.5
- 2024 (Proj.): 152.5
- 2025 (Proj.): 158.6
- Total external debt (in billions of U.S. dollars):
- 2020: 416.9
- 2021: 414.0
- 2022: 396.8
- 2023 (Proj.): 403.8
- 2024 (Proj.): 419.1
- 2025 (Proj.): 441.4
- Exchange rate:
- Rupiah per U.S. dollar (period average): 2020: 14,529; 2021: 14,297; 2022: 14,874
- Rupiah per U.S. dollar (end of period): 2020: 14,050; 2021: 14,253; 2022: 15,568
- Nominal GDP (in trillions of rupiah):
- 2020: 15,443
- 2021: 16,977
- 2022: 19,588
- 2023 (Proj.): 21,459
- 2024 (Proj.): 23,229
- 2025 (Proj.): 25,048
Source: IMF Press Release — IMF Executive Board Concludes 2023 Article IV Consultation with Indonesia (Press Release No. 23/229).