IMF Predicts Growth for Indonesia in 2016

March 15, 2016Indonesiaby EW News Desk Team

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According to the International Monetary Fund (IMF) Indonesia's economy should grow at a slightly faster rate in 2016 after slowing for several years. The growth comes because of higher public investment and improving sentiments around the world toward the Southeast Asian nation's economy, the largest in the region. 

The IMF released its annual policy review on Monday, which forecasted Indonesia's 2016 growth rate for real gross domestic product at 4.9%. That is a slight improvement from 2015's 4.7% rate, and brings it almost on a par with its rate of 5.0% in 2014. 

The IMF described Indonesia as having "safely navigated" economic challenges caused by a drop in commodity prices and China's economic turmoil. Nevertheless, despite the generally optimistic tone of the International Monetary Fund's report, it still warned that its outlook was contingent on a number of factors and that its predictions could downgrade before the end of the year. 

"Risks to the outlook are tilted to the downside, mainly from external factors including more volatile global financial conditions, a deeper-than-expected slowdown in emerging market trading partners and further declines in commodity prices, requiring continued vigilance by policymakers," the IMF report said.

The IMF predicts favorable results for Indonesia's medium-term growth prospects, so long as Jakarta stays its course of greater inclusion and improved financial system stability. The IMF Executive Board credited Indonesia's conservative monetary policy in 2015 with keeping down inflation and holding it down to the target region of 3-5% for 2016. Nevertheless, the Fund suggested a cautious approach for Indonesia when it comes to monetary easing.

Indonesia's central bank slashed interest rates in February by 25 basis points, bringing it down to 7.0%. Many economists predict Indonesia may make another 25 basis point cut later this week. 

"While the recent easing is appropriate,” the IMF directors said in the report, "it should be gradual and cautious to safeguard financial stability, keep inflation within the target band and support external adjustment." They added that bond yields should remain market-driven.

The IMF also commented positively on Indonesia's reduction in energy subsidies for 2015. It warned, however, that low oil prices had caused the government's revenues from these subsidies to underperform their targets, requiring the nation to diversify its income streams to maintain momentum on its infrastructure and social investment projects. The IMF argues that these programs will be crucial to Indonesia's continued economic growth.

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