Deni Ghifari, Jakarta – The International Monetary Fund has praised Indonesia for maintaining economic growth and containing inflation amid mounting pressure from external factors but emphasizes that the country needs the right "policy mix" to secure the future.
Following its 2025 Article IV consultations on Indonesia, the IMF wrote in a press release on Saturday that "Indonesia remains a global bright spot, with strong economic growth amid a challenging external environment, and inflation expected to remain comfortably in the target range".
"The Indonesian economy has shown resilience amid adverse shocks", IMF mission chief for Indonesia Maria Gonzalez said in the statement, adding that the archipelago's gross domestic product was projected to grow by 5 percent in 2025 and 5.1 percent next year.
As key external risks to that projection, Gonzalez named trade tensions, prolonged uncertainty and global financial market volatility.
"On the domestic side, large policy shifts, if not implemented with sufficiently robust guardrails, could build up vulnerabilities. Upside risks include bolder structural reforms, including faster-than-anticipated push on the trade front, and positive spillovers from stronger growth among trading partners," said Gonzalez.
Her team's analysis projected the fiscal deficit this year to close at 2.8 percent of GDP, in line with the government's latest projection of 2.78 percent made in the middle of the year, and below the legal cap set at 3 percent of GDP.
The deficit was sitting at 1.56 percent of GDP at the end of the third quarter, and Finance Minister Purbaya Yudhi Sadewa revealed on Friday that some state institutions had "given up" on expending the full budgets allocated to them for the year, instead opting to return funds.
The IMF projects a slight increase in the deficit to 2.9 percent of GDP for next year, "based on more conservative growth and revenue projections than those envisaged in the 2026 budget", said Gonzalez. Next year's state budget plan foresees a lower deficit at 2.68 percent of GDP.
"Carefully managing budget execution to secure the authorities' budget target would provide needed fiscal support to the economy while preserving fiscal space to be deployed if downside risks materialize," noted the IMF official.
She went on to say that keeping the fiscal risks "well-contained" would require prudence alongside "strong safeguards and rigorous oversight of quasi-fiscal operations". Gonzalez recommended stronger revenue mobilization, a focus on high-quality spending and spending efficiency to enhance fiscal policy effectiveness in supporting growth.
She noted the government's goal of turning Indonesia into a high-income economy by 2045 by targeting higher growth through a supportive macro policy mix and expansion of state-led initiatives.
"Raising long-term growth durably and inclusively will require ambitious horizontal structural reforms, including on infrastructure, deregulation, reducing trade barriers and further enhancing global integration," said Gonzalez.
She added that Indonesia had to boost the supply side of the economy, generate strong micro, small and medium enterprises, earn higher foreign direct investment and induce a dynamic private sector.
The IMF arrived at these conclusions following discussions with Indonesian government officials, Bank Indonesia, the Financial Services Authority (OJK), other public agencies and representatives of the private sector and civil society from Nov. 3 to 12.
Source: https://asianews.network/indonesia-still-bright-spot-in-troubled-world-economy-imf