Indonesian economy grew in 2021 despite COVID-19, will accelerate in 2022, says World Bank report

Accommodative policies, expansion of vaccination, key to economic dynamics

Jakarta, December 16, 2021 – , the World Bank announced on Thursday.

The projection assumes that Indonesia will avoid another severe peak of COVID-19, achieve 70% vaccination coverage in 2022 in most provinces, and maintain accommodative monetary and fiscal policies. It also assumes that global trade growth and commodity prices will slow. These issues are discussed in detail in the World Bank’s latest report on Indonesia’s economic outlook, A green horizon, towards a high-growth, low-carbon economy.

“The Delta wave has taught us that continuing to improve vaccine deployment, testing and tracing, as well as ensuring adequate critical care capacity are among the best ways to prepare for the Omicron variant and any other COVID-19 variant. 19″, noted World Bank Director for Indonesia and Timor-Leste Satu Kahkonen. “Beyond a strong public health response, it is also important for Indonesia to support recent structural reform efforts. This should boost growth even as the authorities begin to gradually reduce macroeconomic support.

Downside risks to the outlook remain high amid uncertainty over the pandemic, global financial conditions and the scarring effects of the crisis, the report said.

To maintain economic momentum and prevent the effects of the pandemic from leaving lasting economic and social scars, authorities will need to focus on a policy response that bolsters investment, accelerates human capital accumulation and boosts productivity, recommends The report. Challenges ahead include containing the pandemic by accelerating vaccine deployment in lagging areas and accelerating testing, tracing and treatment; and maintain accommodative monetary and financial policy while preparing to calibrate policies as global and domestic financial pressures evolve.

Improving fiscal space will also be important for the pandemic response and for medium-term fiscal sustainability, the report recommends. The recently adopted tax harmonization law is a crucial step in addressing low tax collection rates. Indonesia’s structural reforms will be important in building a more competitive, resilient and greener economy.

An analytical section of the report examines policy priorities for turning Indonesia’s climate commitments into action while advancing the country’s broader development goals. . Phasing out coal and expanding renewable energy will be key to achieving Indonesia’s low-carbon transition goals.

“Indonesia’s climate ambitions in the power sector require a comprehensive package of reforms and investments,” noted World Bank Indonesia and Timor-Leste Chief Economist Habib Rab. “This could include four elements: strengthening electricity sector institutions, enabling private investment in renewable energy, ensuring the financial sustainability of the sector and promoting a just transition for all..”

Strengthening public institutions in the power sector and aligning government and power utility (PLN) zero-carbon strategies will provide clear signals on the path to transition. Reforming renewable energy price controls, reducing or eliminating local content requirements for renewable energy equipment, and phasing out coal and fuel subsidies will help attract the private sector. Improving PLN’s revenue adequacy will be key to financing its investment needs. Finally, a comprehensive plan must be developed to ensure that people and communities will benefit from the transition to a greener economy.

the Indonesia Economic Outlook is supported by the Australian Department of Foreign Affairs and Trade.

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