IMF Executive Board Concludes 2020 Article IV Consultation with Indonesia
IMF News, March 3, 2021
Source details
- Canonical URL
- IMF Executive Board Concludes 2020 Article IV Consultation with Indonesia
Other formats
Bibliographic details
- Published: March 3, 2021
Economic developments in 2020
- Real GDP increased by 3.2 percent in 2020:Q3 (q/q, s.a.) and is expected to have contracted by a modest 1.9 percent in 2020 as a whole. (Note: a footnote states the actual real GDP growth rate in 2020 was -2.1 percent.)
- Headline inflation reached 1.7 percent (y/y) at end‑2020, below the Bank Indonesia’s target band (3±1 percent).
- Current account deficit is expected to have narrowed to 0.5 percent of GDP in 2020, mostly due to a relatively sharper contraction of imports.
- The Indonesian economy is gradually recovering driven by a bold, comprehensive, and coordinated policy response to the COVID‑19 pandemic.
Outlook and key projections
- Real GDP projections:
- 2021: 4.8 percent
- 2022: 6 percent
- Inflation projection:
- Rise gradually to 3 percent (y/y) at end‑2021.
- Current account projection:
- 2021: widen to 1.5 percent of GDP.
- Credit growth:
- Expected to pick up in 2021 with stronger activity, albeit remaining below nominal GDP growth because of increased risks to asset quality and bank profitability.
- Risks to the outlook:
- Upside: Early widespread vaccination.
- Downside: Delays in vaccination leading to a more protracted pandemic; larger-than-expected macro-financial fallout; slow improvement in credit conditions.
- Policy measures cited as supporting the outlook:
- Increased public investment.
- COVID‑19 vaccine distribution plans.
- Improved global economic and financial conditions.
Executive Board assessment and guidance
- Commendations and observations:
- Authorities’ containment measures and supportive macroeconomic policies cushioned the pandemic’s economic impact.
- Indonesia’s strong fundamentals and prudent macroeconomic policy track record contributed to resilience.
- Fiscal policy:
- Directors commended the authorities’ commitment to return to the statutory budget deficit ceiling by 2023.
- Emphasized unwinding exceptional measures in a balanced manner.
- Stressed need to underpin fiscal rules with a medium-term fiscal strategy that includes revenue measures.
- Higher government revenues would help create space to boost development spending and support sustainable and inclusive growth.
- Capacity building support will be crucial.
- Monetary policy and central bank operations:
- Maintaining an accommodative monetary policy stance, contingent on the inflation outlook, is appropriate.
- Authorities pursue accommodation via lower policy interest rates and government bond purchases by Bank Indonesia in current exceptional circumstances.
- Directors welcomed Bank Indonesia’s plan to conduct bond purchases in 2021 only as a last resort under the market mechanism and suggested clarifying last-resort criteria to enhance the monetary policy framework and safeguard operational independence.
- Noted the role of exchange rate flexibility in absorbing shocks.
- Financial sector:
- Banking system remains stable; continued monitoring of bank asset quality is warranted.
- Proactive loan loss provisioning is critical for banks’ ability to weather deterioration in asset quality.
- Additional targeted policy steps may be necessary if bank lending to the private sector does not rebound.
- Importance of continuing to upgrade crisis management and resolution frameworks.
- Structural reforms:
- Directors welcomed the omnibus bill on job creation and plans to close infrastructure gaps.
- Encouraged sustaining reform momentum with focus on:
- Developing a medium-term government revenue strategy.
- Financial deepening and digitalization.
- Fostering a greener economy and tackling challenges related to climate change.
Selected economic indicators (highlights and exact figures)
- Real GDP (percent change): 2016: 5.0; 2017: 5.1; 2018: 5.2; 2019: -1.9; 2020 1/: 4.8 (Est.); 2021 Proj.: 4.8
- Note: Table shows series including domestic demand components and discrepancies due to data timing; footnote 1/ states based on data as of January 29, 2021 and does not include national accounts data for 2020:Q4 released on February 5, 2021.
- Gross investment (in percent of GDP): 2016: 33.9; 2017: 33.7; 2018: 34.6; 2019: 33.8; 2020: 32.5; 2021: 32.7
- Gross national saving (in percent of GDP): 2016: 32.0; 2017: 32.1; 2018: 31.6; 2019: 31.1; 2020: 31.2
- Consumer prices (end period, 12-month percent change): 2016: 3.0; 2017: 3.6; 2018: 2.6; 2019: 1.7; 2020: (end‑2020) 1.7
- General government revenue (percent of GDP): 2016: 14.3; 2017: 14.1; 2018: 14.9; 2019: 14.2; 2020: 12.1
- General government expenditure (percent of GDP): 2016: 16.8; 2017: 16.6; 2018: 16.4; 2019: 17.8; 2020: 18.0
- General government balance (percent of GDP): 2016: -1.8; 2017: -2.2; 2018: -5.7; 2019: -5.9; 2020: -3.7
- Primary balance (percent of GDP): 2016: -1.0; 2017: -0.9; 2018: 0.0; 2019: -0.5; 2020: -3.7; 2021: -4.0
- General government debt (percent of GDP): 2016: 28.0; 2017: 29.4; 2018: 30.4; 2019: 30.6; 2020: 35.7; 2021: 40.1
- Rupiah M2 (12-month percent change; end of period): 2016: 10.0; 2017: 8.3; 2018: 6.3; 2019: 6.5; 2020: 11.5; 2021: 7.0
- Claims on private sector (12-month percent change; end of period): 2016: 7.7; 2017: 7.2; 2018: 10.3; 2019: 5.8; 2020: 5.6
- Current account balance (in billions of U.S. dollars): 2016: -17.0; 2017: -16.2; 2018: -30.6; 2019: -30.4; 2020: -5.5; 2021: -17.4
- Current account (in percent of GDP): 2016: -1.6; 2017: -2.9; 2018: -2.7; 2019: -1.5; 2020: -0.5 (expected)
- Trade balance (in billions of U.S. dollars): 2016: 15.3; 2017: 18.8; 2018: -0.2; 2019: 23.4; 2020: 20.3
- Gross reserves (in billions of U.S. dollars, end period): 2016: 116.4; 2017: 130.2; 2018: 120.7; 2019: 129.2; 2020: 135.9; 2021: 152.3
- Gross reserves (in months of prospective imports of goods and services): 2016: 7.6; 2017: 7.1; 2018: 9.9; 2019: 8.1
- Total external debt (in billions of U.S. dollars): 2016: 320.0; 2017: 352.5; 2018: 375.4; 2019: 403.5; 2020: 416.6; 2021: 446.9
- Total external debt (percent of GDP): 2016: 34.3; 2017: 34.7; 2018: 36.0; 2019: 36.1; 2020: 38.3; 2021: 38.5
- Rupiah per U.S. dollar (period average): 2016: 13,306; 2017: 13,383; 2018: 14,231; 2019: 14,140; 2020: 14,541; 2021: 14,541
- Rupiah per U.S. dollar (end of period): 2016: 13,473; 2017: 13,568; 2018: 14,390; 2019: 13,866; 2020: 14,050
Press Release No. 21/54, March 2, 2021.
