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Turning the growth corner?

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General Information

GDP USD861.9bn (World ranking 16, World Bank 2015)
Population 257.6 million (World ranking 4, World Bank 2015)
Form of state Republic
Head of government Joko WIDODO
Next elections 2019, presidential and legislative

Country Rating B2note-circle-med-risk


  • Favourable demographics: large and young population
  • Abundant natural resources
  • Relatively good international relations (access to foreign assistance if needed)
  • Track record of solid fiscal policies and relatively low public debt
  • Banking system has shown overall resilience to the global financial crisis


  • Exchange rate volatility and vulnerability to external shocks
  • Lack of infrastructure compared to regional peers (Malaysia, Thailand)
  • Strong dependence on commodities exports especially to China 
  • Increasing inequality poses a threat to social cohesion and economic growth 

Economic Overview

First signs of pickup in growth?

GDP growth is set to level off in 2016 after five years of deceleration. The economy is forecast to expand by +5% this year after +4.8% in 2015. Domestic demand is on the rise, supported by strong fiscal spending and higher private consumption. 

Exports still struggle but as commodity prices edge up, one can see first signs of improvement. Private investment crawls upward but improved economic conditions suggest a gradual increase. 
Domestic credit conditions have eased thanks to lower interest rates. Moreover, streamlined regulations for foreign investors, an under control current account deficit, and better demand prospects should translate into a gradual increase in foreign inflows. Risks include yet another drop in commodity prices, lower external demand growth, and tighter global financing conditions. 

Adequate policies enhance the economic outlook

The deficit is set to widen in the short run. Reasons include government increases in expenditures to support economic growth and lower commodity prices which translate into lower fiscal revenues. Yet alarm bells should not sound for the time being. Relatively low levels of debt and deficit are supported by a tough fiscal framework which limits government deficit to -3% GDP and public debt to 60% GDP.    

The monetary policy is flexible and appropriate. A tight approach in 2015 helped the economy to (i) navigate through external turbulences (lower commodity prices, Fed tightening) and (ii) reduce inflationary pressures. In H1 2016, a combination of lower inflation and a slight improvement in external conditions allowed the Central Bank to ease its monetary policy. Looking ahead, a cautious easing stance will probably be maintained to support economic growth. 
The country’s business environment is significantly improving. Indonesia is now ranked 109th (up from 120th) in the World Bank’s Doing Business 2016 survey. It ranks better on Paying taxes, Dealing Construction and Getting credit sub-components. 

​External position is improving

External pressures on the currency have abated thanks to the cautious monetary stance. The external debt to GDP ratio and the import cover ratio (above 6 months) are at acceptable levels. Furthermore, the current account balance has improved and stabilized above -3% GDP. Lower exports were compensated by lower imports. 

Last review: 9/27/2016