Indonesia growth prospects revised by ADB

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jakarta-street-constructionThe Asian Development Bank (ADB) in an update of its Asian Development Outlook 2016 revised down its forecast for Indonesia’s economic growth this year to five per cent from the previous projection of 5.2 per cent, following the government’s decision to slash its budget.

According to ADB economist Priasto Aji, a state revenue shortfall due to sluggish tax collection forced the government to reduce public spending. That means that promised important infrastructure projects will probably be delayed, the Jakarta Post reported.

“Private investment is also sluggish because the private sector’s reaction to the government’s structural reform is slow,” Priasto said.

According to ADB deputy country director for Indonesia Sona Shrestha, the revenue shortfall was exacerbated by the slow performance of the tax amnesty. Those conditions would lead to very limited room for fiscal stimulus, while the monetary stimulus will have wider room for implementation amid low inflation.

“There is monetary policy space to stimulate growth. The reform of the investment climate can stimulate growth as well,” she said, adding that both monetary stimulus and bureaucratic reform would take time to take effect.

Despite the fact that Bank Indonesia has cut the benchmark interest rate, it usually takes at least three months for bankers to transmit the policy to the economy, thus, according to the ADB, the growth revision was inevitable.

From January to June 2016, Indonesia’s economy grew by 5.04 per cent, faster than a 4.70 per cent expansion in the same period a year earlier.

 

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The Asian Development Bank (ADB) in an update of its Asian Development Outlook 2016 revised down its forecast for Indonesia’s economic growth this year to five per cent from the previous projection of 5.2 per cent, following the government's decision to slash its budget. According to ADB economist Priasto Aji, a state revenue shortfall due to sluggish tax collection forced the government to reduce public spending. That means that promised important infrastructure projects will probably be delayed, the Jakarta Post reported. "Private investment is also sluggish because the private sector’s reaction to the government's structural reform is slow," Priasto said....

Reading Time: 1 minute

jakarta-street-constructionThe Asian Development Bank (ADB) in an update of its Asian Development Outlook 2016 revised down its forecast for Indonesia’s economic growth this year to five per cent from the previous projection of 5.2 per cent, following the government’s decision to slash its budget.

According to ADB economist Priasto Aji, a state revenue shortfall due to sluggish tax collection forced the government to reduce public spending. That means that promised important infrastructure projects will probably be delayed, the Jakarta Post reported.

“Private investment is also sluggish because the private sector’s reaction to the government’s structural reform is slow,” Priasto said.

According to ADB deputy country director for Indonesia Sona Shrestha, the revenue shortfall was exacerbated by the slow performance of the tax amnesty. Those conditions would lead to very limited room for fiscal stimulus, while the monetary stimulus will have wider room for implementation amid low inflation.

“There is monetary policy space to stimulate growth. The reform of the investment climate can stimulate growth as well,” she said, adding that both monetary stimulus and bureaucratic reform would take time to take effect.

Despite the fact that Bank Indonesia has cut the benchmark interest rate, it usually takes at least three months for bankers to transmit the policy to the economy, thus, according to the ADB, the growth revision was inevitable.

From January to June 2016, Indonesia’s economy grew by 5.04 per cent, faster than a 4.70 per cent expansion in the same period a year earlier.

 

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