Indonesian economy to steadily grow over next two years: World Bank

Indonesia’s economy is expected to steadily grow over the next two years on the back of domestic consumption and investment despite weak exports, a World Bank report said Monday.

Household spending, traditionally a strong contributor to Indonesia’s GDP, and election-related spending helped to expand Southeast Asia’s largest economy 5.11 percent in the first quarter of 2024.

And it is expected to expand five percent overall this year, followed by 5.1 percent in 2025 and 2026, according to the World Bank’s Indonesia Economic Prospects report.

The latest projection was an increase from the Bank’s previous estimates of 4.9 percent this year and next, followed by five percent in 2026.

“The economy is expected to benefit from a pick-up in public consumption and investment but will face headwinds, notably from worsening terms of trade,” the report said.

It noted several risks to the economy, including high interest rates and geopolitical shocks, which could further weigh on exports already impacted by lower prices.

“The outlook is stable, but risks are tilted to the downside,” World Bank senior economist Wael Mansour told a news conference.

“Our baseline (projection) assumes continuity in policy, especially those linked to boosting investment.”

The latest projection assumes a large contribution from public consumption — with government spending expected to increase — while foreign direct investment as a share of GDP is projected to return to pre-pandemic levels, Mansour said.

He added that Indonesia’s “credible” fiscal rule had helped attract investments and lower Indonesia’s risk premiums.

But president-elect Prabowo Subianto, who will take office in October, is reportedly looking to increase the country’s debt-to-GDP ratio to 50 percent — from less than 40 percent — to fund his campaign promises including free school meals.

A member of Prabowo’s campaign team has denied the plan.

The government’s 2025 budget, due by October, is expected to outline an implementation plan for the new administration’s economic goals, and signal its fiscal policy stance. (BSS/AFP)