The Strategist

Indonesia growth interlinked with investment: World Bank

03/19/2015 - 06:52

A new World Bank report has revealed that rapid growth in Indonesia will be strongly interlinked with investment growth in 2016.

The March 2015 edition of the Indonesia Economic Quarterly noted that economic growth in the Asian country has moderated to 5.0 % in 2014. The country continues to be affected by lower global commodity prices caused by a slowdown in China.

The report underlines the importance of government spending in infrastructure to lift demand and improve fixed investment spending, currently at 4.3 percent year-on-year. World Bank expects at least doubling up of the investment by the government.

While domestic consumption continues to be the main driver of growth, higher import costs and profit margin pressures may dampen domestic spending and investment. The report also takes a closer look on the importance of preservation of the natural resources of the country. Effective public management of resources and a sound policy framework for regulation is needed for the country’s growth, according to the report.

 “The Government of Indonesia deserves praise for the fuel subsidy reforms and subsequent budget reallocation to infrastructure spending. But lower oil prices and weak tax compliance have eroded the savings from subsidy reform, requiring sustained public policy action at this time of high expectations. In the long term, Indonesia would benefit from improving revenue collection, including from the non-oil sector,” according to Rodrigo Chaves, World Bank Country Director for Indonesia.