‘Positive’ outlook for Indonesian economy after government spending during pandemic

By:

Calum Rutter

8 Jan 21

“Bold” policies adopted during 2020 to fight the health and economic effects of Covid-19 have prevented a protracted economic downturn in Indonesia, the IMF has said.

GDP is expected to grow by 4.8% in 2021 and 6% in 2022, as the country emerges from the pandemic, said fund staff after a series of discussions with the country’s officials – adding that the outlook is “positive” following a rebound in the second half of 2020.

“Indonesia has responded with a bold, comprehensive and coordinated policy package to address the socio-economic hardship inflicted by the Covid-19 pandemic,” said Thomas Helbling, who led the IMF team during the talks.

The government spent 744.28trn rupiah (£39bn) on it virus response measures in 2020, including extra money for health services, large transfers to laid-off and informal workers, free electricity and low-cost housing for those in need – as well as support for hard-hit industries such as tourism.

Helbling said widespread vaccinations will be important as the recovery progresses, and warned that delays “could lead to a more protracted pandemic” and risk negative economic consequences.

“To secure the ongoing recovery, sufficient policy support will be essential,” he said, but added that, in the medium term, suspended fiscal targets, such as keeping the budget deficit below 3% of GDP, should be restored.

He said the deficit should be brought down in the coming years by boosting revenue.