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Moderate growth in sight amid recovery

After going through difficult times, the national economy is expected to pick up next year on the back of increasing private consumption, prudent public spending and a gradual recovery in global growth, a new report from the World Bank suggests.

In its recently released East Asia and Pacific Economic Update, the Washington-based institution keeps its growth forecast for Indonesia’s economy unchanged at 5.1 percent this year and 5.3 percent in 2017.

Both figures are slightly higher than those of the government, which expects the gross domestic product (GDP) to rise by 5 percent in 2016 and 5.1 percent in 2017.

The World Bank’s forecast is also more optimistic than that of the Asian Development Bank (ADB), which last month trimmed Indonesia’s 2016 economic growth forecast to 5 percent from 5.2 percent on the back of sluggish public and private investment. The Philippines-based institution also revised down its growth forecast for next year to 5.1 percent from 5.5 percent.

The World Bank said in the report that the forecast was based on the projection that private consumption would pick up on account of moderate inflation and lower energy prices, a relatively stable rupiah and fiscal support in the form of a higher personal income tax threshold and additional monthly salary for civil servants.

“Beyond 2016, the outlook depends on private investment growth picking up as it responds to the government’s reforms and the gradual recovery in global growth,” the report says.

President Joko “Jokowi” Widodo’s administration targets GDP growth of 7 percent by the end of its tenure in 2019. Southeast Asia’s largest economy expanded by just 4.8 percent last year, the slowest in six years, on the back of plunging commodity prices and China’s economy volatility.

Hans Anand Beck, the World Bank’s senior economist for Indonesia, also highlighted other factors that might restrain the country’s economic recovery.

“There are significant downside risks, such as continued weak performance of the global economy and trade on the external side and continued uncertainty of the timing and magnitude of the US rate hike and commodity prices that are projected to pick up very slightly,” he said on Wednesday.

The state budget deficit reached 2.08 percent of GDP on Aug. 5 amid the pinch of a global economic slowdown. To help plug the widening deficit, Indonesia expects to collect more than Rp 165 trillion (US$12.5 billion) in penalty payments from the nine-month tax amnesty program, kicked off in July.

During the first three months of the program’s implementation that ended on Sept. 30, the program contributed Rp 89.1 trillion to the cash-strapped state budget from the penalty or redemption payment. Tax office spokesperson Hestu Yoga Saksama attributed the positive progress to increasing participation in the program.

The program also persuaded almost 400,000 taxpayers to declare Rp 3.6 quadrillion in assets, which is hoped to become the new tax base, an achievement the World Bank applauded.

“In Indonesia, growth will increase steadily [...] contingent on a pickup in public investment and the success of efforts to improve the investment climate and increase revenues,” said Sudhir Shetty, the World Bank’s chief economist for the East Asia and Pacific region.

The government predicts that investment will expand by 6.1 percent next year, below the 6.4 percent target stated in the original 2017 state budget draft, as several business sectors, such as commodities, remain under pressure from a weak global economy.

Growth in private consumption, meanwhile, is seen unchanged at 5 percent, while expected government spending was reduced to 4.8 percent from 5.4 percent.

Source: Antara News