NOW! JAKARTA | Indonesia’s Fiscal Year and Outlook
Indonesia’s Fiscal Year and Outlook
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Bank Indonesia recently released a report on the country’s fiscal year 2017 and outlook for this year. These are the key points of the report:

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The global economy recovery continues, as well as being more balanced, accompanied by persistently high commodity prices. Global economic growth in 2017 surpassed the 2016 growth, with more balanced sources of growth from advanced as well as developing countries. US GDP growth improves on the back of increasing investment and stable consumption. Congruently, the economy of Europe posted solid gains, supported by consumption and export performance. China’s economy also improves, supported by consumption and exports amid the economic rebalancing process that is gradually underway. World trade volume and international commodities prices, including oil, is higher than the previous year.

Indonesia’s economic recovery occurs gradually and unevenly. Commodity exports increased while household consumption has seen only limited improvements, particularly on foods and clothing expenditures, with a shift in consumption pattern to leisure, as well as a preference to delay consumption in upper-middle class society. Non-building investment increased, particularly amongst commodity-based firms. Investment in non-commodity sectors has not shown significant improvement. Fiscal stimuli from the government related to infrastructure development also encourages building investment. 

Indonesia’s balance of payments (BOP) in 2017 registered a comparatively large surplus while maintaining a healthy current account deficit of below 2% of GDP. The significant BOP surplus primarily stemmed from the capital and financial account, which increased from 2016, particularly in the form of direct and portfolio investments, in line with improvement in investor perceptions of the domestic economic outlook. On the other hand, current account deficit was under control, supported by a large non-oil and gas trade surplus amid large deficit in the services and primary income account as well as repatriation payments on foreign investment returns.

The rupiah remained relatively stable throughout 2017 despite the emergence of external pressures at the beginning of the fourth quarter. The rupiah was stable up until September, but depreciated in October due to external factors. The deprecation was in line with the deprecation of nearly all global currencies against USD in line with the US monetary policy normalisation and the increasing expectation of FFR hike, as well as the tax reforms in the US. In November, the rupiah rebounded in line with maintained macroeconomic stability and the promising domestic economic outlook. 

Inflation was maintained low at 3.5% (YOY) within the inflation target of 4 +/- 1% for 2017 CPI. Core inflation was in line with anchored expectations, stable exchange rates and limited domestic demand. 

Financial system stability maintained despite a suboptimal bank intermediation function. Capital resilience remains relatively high, liquidity increased and efficiency improved. Nevertheless, several risks demanded vigilance: credit risk remained stable, non-financial corporation showed moderate growth and household performance recorded limited growth in October 2017.

In 2018, economic growth is expected to improve based on equitable investment, the ongoing fiscal stimuli from the government, and improved export in line with the favourable impact of global economic gains. Global risks include monetary policy normalisation stance in several advanced countries and geopolitical factors, while the ongoing corporate consolidation and suboptimal bank intermediation function pose domestic risks.


NOW! Jakarta

The article is produced by editorial team of NOW!Jakarta

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