Indonesia govt sets 5.3% to 5.9% GDP growth forecast for 2023

• Feb 17, 2022

INDONESIA expects its economy to grow between 5.3 per cent to 5.9 per cent next year, above 2022’s 5.2 per cent growth target, even as it gradually withdraws pandemic-era fiscal support and reinstates strict fiscal rules, its finance minister said on Wednesday (Feb 16).

The government will use this growth assumption to set 2023 spending plans, adding that the budget will be designed with a deficit of under 3 per cent of gross domestic product (GDP), Finance Minister Sri Mulyani Indrawati said.

Indonesia is in the process of gradually rolling back its fiscal stimulus, even as some analysts and lawmakers argue its economic recovery from the Covid-19 pandemic is not yet on a firm footing.

By law, Indonesia must reinstate a budget deficit ceiling of 3 per cent of GDP next year, after waiving it since 2020 to make room for more spending and debt to help South-east Asia’s largest economy weather the pandemic.

Last year’s fiscal deficit was 4.65 per cent of GDP and this year’s gap is seen around 4 per cent, according to Sri Mulyani’s latest estimate.

Next year, Indonesia’s traditional main growth engines, household consumption and investment, should accelerate, while the contribution of exports is seen declining, Sri Mulyani said. “We have also identified new sources of economic growth,” she said, citing healthcare services as well as manufacturing of electronics, communication equipments, chemical and mineral processing as potential post-pandemic growth drivers.

Plans for low carbon developments and energy transition to renewables will also aid growth, she said, adding that the state budget will be geared to support these sectors. However, the minister said policymakers would monitor the potential spillover impact from global monetary tightening, which could trigger capital outflows and push government bond yields up.

“We also must be alert because inflation has risen in other emerging countries. Rising inflation could threaten an economic recovery because it hurts people’s purchasing power,” she said. REUTERS