In its Macro Poverty Outlook report, the World Bank said that Indonesia’s growth rate is expected to average 4.8% by 2027, but trade policy uncertainty may affect investment and growth.
The World Bank noted that Indonesia’s growth remains resilient, with poverty and unemployment falling, but job creation for the middle class still lags. Global and domestic policy uncertainty has triggered capital outflows, which in turn put pressure on the Rupiah. Therefore, it is necessary to accelerate productivity growth through structural reforms while maintaining prudent fiscal and monetary policies.
Indonesia has been promoted to an upper-middle-income country in 2023 and aims to achieve high-income country status by 2045. To achieve this goal, Indonesia needs to increase its growth rate to at least 6% and achieve 8% growth by 2029 by increasing investment.
Although strong demand has supported stable economic performance and reduced poverty rates, faster growth requires structural reforms to increase the country’s growth potential and reduce the risk of overheating.
Capital formation is expected to rise gradually as investments through Danantara materialize. Private consumption growth will remain strong, with a small moderation due to a lack of quality jobs.
The poverty rate, measured by LMIC standards, is expected to decline to 11.5% in 2027, supported by sustained demand.
Inflation will be pushed up by a positive output gap, but is expected to remain within Bank Indonesia’s target range.
Spending is expected to adjust to new priorities, leading to a widening of the fiscal deficit to 2.7% of gross domestic product (PDB). Spending will shift more toward social sectors, including the newly launched Program Makanan Bergizi. Debt levels will stabilize at about 41% of PDB, while higher borrowing costs will increase interest payments as a share of total revenue to 19%.
The current account deficit is expected to widen to 1.7% of PDB in 2027, above pre-pandemic levels, amid tightening global financial conditions and trade policy measures.
Foreign direct investment (FDI) will remain the main source of external financing, mainly flowing into the hilirisasi industri sector, but the scale of investment is expected to gradually increase as foreign investors seek better policy stability.
The World Bank pointed out that the risks to the overall outlook are tilted to the downside. Trade policy uncertainty, weaker commodity prices and domestic policy uncertainty may pose challenges to growth.