Higher capital spending set to boost Indonesia in 2016

16 Dec 15

Increased capital spending in Indonesia could spur higher growth in the country in 2016, the World Bank has said.

Indonesia_istock.jpg

Jakarta, Indonesia

Jakarta, Indonesia

 

In its quarterly look into the country’s economy, the bank found increases of close to 50% year-on-year in real terms had boosted growth in the third quarter of 2015 and could have further benefits next year if the pace continues.

In the face of market turbulence and a challenging year ahead, with lower demand anticipated from China, Rodrigo Chaves, the bank’s country director for Indonesia, said the higher spending was appropriate.

“The government’s commitment towards more public investments in infrastructure, health and social assistance programmes is welcomed. It could strengthen growth prospects as well as help the poor and vulnerable,” he said.

“If reforms are sustained and implementation is effective, Indonesia may be buffered from potential volatility and enjoy higher growth in 2016.”

The boost to growth comes after forest fires cost the country $16bn in 2015, shrinking the economy by 1.9%.

The bank said there had been both higher budget commitments for development priorities and faster capital project implementation, which would boost the economy.

However, revenue collection remains lower than expected and challenges with implementing the government’s expenditure plans for next year could constrain growth prospects, the bank added.

Private sector investments, exports and imports also remain subdued, which unemployment has increased from 5.9% in 2014 to 6.2% this year.

Ndiame Diop, World Bank lead economist for Indonesia, said economic reforms could free up business growth and encourage private investment.

“In the long term, increased fixed investment is crucial to return to higher economic growth and job creation,” he said. 

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