Indonesia: Selected Issues

IMF Staff Country Reports, February 6, 2018

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The paper focuses on challenges and opportunities related to reaping Indonesia’s demographic dividend.
Demographic trends can impact growth through various channels, including the size of the labor force, productivity, and capital formation.
Indonesia’s growth is set to have a sizeable tailwind from demographic trends.
Aging is projected to start kicking in less than 15 years.
In the long-term, Indonesia can grow old before becoming rich.
The rapid speed of aging implies that Indonesia, similar to many Asian economies, may face the prospect of becoming old before becoming rich.

Maximizing the demographic dividend should be a priority given Indonesia’s favorable demographic trends.
Reaping the demographic dividend requires appropriate policies to:
- raise productivity; and
- create enough quality jobs for the growing working-age population.
Investing in human capital early on, including education and health care, is essential to improve the productivity of the workforce and increase the size of the demographic dividend.

Prioritize policies that maximize the demographic dividend during the available window of opportunity (aging begins in less than 15 years).
Focus on:
- human capital investment (education and health care); and
- measures to boost productivity and job creation for the expanding working-age population.

Subject: Aging, Capital markets, Exports, Financial inclusion, Financial markets, Infrastructure, International trade, National accounts, Population and demographics
Keywords: Africa, Aging, Asia and Pacific, Capital markets, CR, equity-enhancing priority expenditure, export, export destination, Exports, Financial inclusion, financial market, Global, growth strategy, IMF staff estimate, Indonesia, Infrastructure, ISCR, old-age dependency ratio, population share, VAT, VAT threshold, workforce, workforce training