The global economic crisis triggered by the COVID-19 pandemic has hit Indonesia. Indonesia’s economic growth is projected to fall to zero percent in 2020, as weary consumers and mobility restrictions imposed to curb the spread of the virus have led to a freeze in tourism, low commodity prices, and empty shops and restaurants. Recovery will be gradual, and real GDP growth is projected to reach 4.8 percent in 2021, only bouncing back to 6.0 percent in 2022, according to the World Bank’s July 2020 Indonesia Economic Prospects report, released today.
The impact on livelihoods has also been severe, with most Indonesians experiencing income losses. Without a significant expansion of social assistance, as many as 5.5 million Indonesians could have been pushed into poverty because of the Covid-19 shock.
To respond to the crisis, the Indonesian Government has announced a fiscal package amounting to 4.3 percent of GDP. The package includes funds to improve the preparedness of the health sector and a substantial increase in social assistance. If fully disbursed and well-targeted, the stimulus package could go a long way to mitigate the impact of the pandemic on poverty, according to the report.
“We welcome the robust response of the Government of Indonesia to mitigate the impacts of this unprecedented crisis. It is essential that the package is now effectively implemented to have the fullest impact on the people and the economy,” said Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste. “We are also encouraged that the Government is keen to turn this crisis into an opportunity by advancing important reforms to boost competitiveness, which will lay a strong foundation for a more robust recovery.”
This July 2020 edition of the Indonesia Economic Prospects report also outlines strategies to help the country build back better from the crisis, including by building on the expansion of the pandemic-driven expansion of social protection coverage and closing newly identified gaps in the system, and accelerating the delivery of universal health care for all.
“To effectively curb the impact of the pandemic, the government’s decision to shift spending priorities and increase the budget deficit was absolutely necessary,” said Frederico Gil Sander, World Bank Lead Economist for Indonesia. “Going forward, higher spending on health, social protection and infrastructure will still be needed, which makes tax reforms to raise fiscal revenues of paramount importance to flatten the debt curve and maintain Indonesia’s strong macroeconomic framework.”
The Indonesia Economic Prospects report is supported by the Australian Department of Foreign Affairs and Trade.