Indonesia’s economic outlook remains solid, with ongoing reforms by the government expected to help GDP growth rebound to 5 percent next year, the International Monetary Fund says.
An IMF team that visited the country from Dec. 7 to 17 said it found the government had demonstrated “sound monetary management and a prudent fiscal stance” in the past year to navigate through the challenging environment of weak commodity prices, global economic slowdown, and financial market volatility.
“Overall, macroeconomic performance in 2015 has been satisfactory,” Luis E. Breuer, the head of the delegation, said in a statement issued on Tuesday.
“Economic growth has stabilized and is projected to reach 4.7 percent this year. A moderate acceleration to around 5 percent is forecast in 2016. Investment activity [will] lead the recovery, in particular, public sector spending.”
While the IMF’s growth forecast is lower than the government’s projection of 5.3 percent, Breuer said the medium-term outlook also remained favorable, thanks to a series of stimulus measures issued by the government to streamline business and investment activity. Inflation next year should hover between 3 and 5 percent, with a moderate increase in the current-account deficit, he said.
“The authorities expressed a strong commitment to continue with structural reforms to establish new drivers of growth, including reviewing the role of domestic and foreign investment and assessing the benefits of regional trading arrangements,” Breuer said, noting that more flexibility in labor practices could encourage employment as well as new private investment.
Breuer also called Bank Indonesia’s current monetary policy stance “appropriate” in helping the economy adjust to external pressures, even as calls mount for the central bank to cut its key interest rate in help spur growth.
BI has held its rate at 7.5 percent since February, citing efforts to maintain the weakening rupiah, which has lost nearly 10 percent of its value against the US dollar since the start of the year.
Breuer said there were some downside risks to the outlook, cautioning of further declines in commodity prices as well as slowing demand from Indonesia’s main trading partners, such as China, and concerns about the government’s execution of its economic reform plans.
“Domestic risks could arise from slower-than-expected progress on implementation of key structural reforms, tax revenue and infrastructure spending,” he said, adding there were also challenges with revenue mobilization, as much of the government’s revenue is derived from commodities.