The Long Road to Recovery - Indonesia Economic Prospects July 2020 Frederico Gil Sander - Pubdocs.worldbank.org.
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Indonesia Economic Prospects July 2020
The Long Road to Recovery
Frederico Gil Sander
Lead Economist
Competitiveness reforms
to boost Indonesia’s speed:
- Openness
- Human capital
Entering - Infrastructure
2020, the
road 2045?
seemed 2022
long but 2021
straight… 2020
2019: Indonesia crosses
Upper-Middle Income
threshold
…but
then…
AWAS!
COVID DI DEPAN
Annual World GDP
(yoy growth)
World Advanced Economies Emerging Market and Developing Economies
6
…covid-19 4
led to a 2
major 0
global -2
economic -4
shock… -6
-8
2017 2018 2019e 2020f 2021f
Source: World Bank Global Economic Prospects
Note: (e) is estimated, (f) forecast
Commodity Prices and Projections
(Index: 2019 = 100)
Energy Index Food Index Metals and Minerals Index
120
110
100
…lower
commodity
90
prices…
80
70
60
50
2017 2018 2019 2020e 2021f 2022f
Source: World Bank commodity price projections, April, 2020
Note: 2019=100, (e) is estimated, (f) is forecast
Exchange Rate, Bond Yields, and Capital Flows (Indonesia)
(NEER Index and Yield Index, LHS; Capital flows, USD million, RHS)
Capital flows Exchange Rate (NEER) 10-year bond yield
Pre-Covid19 Covid19
120
Q4 2019 Q1 2020 Q2 2020
…massive
115 2000
capital
110
0
outflows 105
from
-2000
100
emerging 95
-4000
markets… 90
-6000
85
80 -8000
Source: IIF, BI, BIS, World Bank staff calculations
Note: October 2019 =100 for NEER and 10-year bond yield
Tourism Indicators (Indonesia)
(yoy growth, LHS; yoy growth for GDP, RHS)
Visitors Arrivals Services Exports
Services Exports (Transportation) (GDP) Accommodations
Covid19
40 6
30 5
4
…and 20
3
freezing
10 2
tourism
0 1
-10 0
flows -20
-1
-2
-30 -3
-40 -4
Source: BPS, World Bank staff calculations
7-Day Moving Average of Google Mobility Index
(Percent change from baseline (=0))
Domestic
5
mobility 0
restrictions -5
to manage -10
the spread -15
of Covid -20
limited both -25
supply and -30
demand -35
15/02 15/03 15/04 15/05 15/06
Source: Google Mobility Data Index
GDP by Industry GDP by Expenditure
(contributions to growth yoy, percentage points) (contributions to growth yoy, percentage points)
Agriculture Construction
Manufacturing Other industry Private consumption Government consumption
Trade, transport & hospitality Health, edu. & public admin. Investment Net exports
Knowledge intensive services Other services Change in inventories Stat. discrepancy
GVA GDP
5.50 5.1
5.5 4.9
4.50
4.5
3.5 3.50 3.0
3.0
2.5 2.50
1.5 1.50
0.5 0.50
-0.5 Average 2017 - 2019 Q1 2020 -0.50
Source: BPS; World Bank staff calculations Average 2017-2019 Q1 2020
Notes: Knowledge intensive services consist of information and communication, financial and insurance activity, real estate, and business services. Trade, transport & hospitality consist of wholesale and retail trade, repairs,
transportation and storage, and accommodation and F&B activities
Labor-intensive sectors slowed, while
knowledge-intensive sectors were resilient
Retail sales, consumer confidence, BI Business
Survey, BI PMI, and exports
(index, LHS ; yoy growth, RHS)
CCI BI PMI BI Business Survey RSI Exports
140 10
Covid19
120
100 5
80
60 0
40
20 -5
The shock deepened 0
in Q2, likely leading -20 -10
the economy to -40
contract
-60 -15
Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Source: Bank Indonesia, BPS; World Bank staff projections
Note: CCI is Consumer Confidence Index, RSI is Retail Survey Index, BI PMI is Bank Indonesia’s Prompt
Manufacturing Index, BI Business Survey Index. Other than BI PMI, the charts shows the average value of months
in each quarter. The right-hand side axis shows yoy growth for exports and retail sales indexShare of household heads who experience
income and job losses relative to pre-crisis*
by sectors
(Percent)
Job Loss Income Loss
Transport,
Trade, Hotel and Storage and
Agriculture Manufacturing Construction Oth. Industry Restaurant Communications Oth. Services
100
90
90
84
80
70
70
61
60 55
54
49
50
Livelihoods have
40 35
33 34
30 26
been severely
20
20 16
14
affected
10
0
Source: World Bank staff calculation.
Note: Job loss here includes both unemployment and working age individuals whom become inactive. This is
because it was not feasible to distinguish between the two in Susenas March 2019 data from which the simulation
is based on. (*) Pre-crisis level refers to year 2019, and adjusted with the actual coverage of social assistance (SA)
measuresHealthcare
IDR 84.6 trillion (0.5 percent of GDP)
Social Protection
IDR 139.8 trillion (0.9 percent of GDP)
Supporting MSMEs
IDR 121.1 trillion (0.7 percent of GDP)
In response to the Support to SOEs
shock, the government IDR 112.2 trillion (0.7 percent of GDP)
announced a series of
fiscal packages… Tax Relief
IDR 123 trillion (0.8 percent of GDP)
Source: World Bank staff compilation from various sources.
Note: The written figure may be different from the Government-announced stimulus package.…which includes a massive expansion of social
assistance to protect livelihoods
Program name Increased coverage above pre COVID-19 Benefit incidence & duration
Sembako Additional of 5 million households (HH) to 20 million
Increased benefits of IDR 200,000/month (for 12 months)
(Staple food) HH, identified among those already in the DTKS
Additional of 800 thousands HH to 10 million HH,
PKH Increased benefits by 25% for 12 months
identified among those already in DTKS
Kartu Prakerja • Training: IDR 1 million/month,
Additional of 3.6 million to 5.6 million individuals in
(Pre-employment • Benefits: IDR 600,000/month (4 months), IDR
total
card) 50,000/months (3 months)
UCT IDR 600,000/month (3 months), then IDR 300,000/month
9 million HH
(Non-Jabodetabek) (6 months)
Sembako • 1.2 million HH in Jakarta, Food package equivalent to IDR 600,000/month (3
(Jabodetabek) • 600,000 HH in periphery districts (Bodetabek) months), then IDR 300,000/month (6 months)
All households subscribing to 450VA and 900VA HHs with 450 VA – fee waiver (6 months)
Electricity Subsidy
electricity connection. HHs with 900 VA – 50% off bills (6 months)
BLT Dana Desa 11 million rural HH, prioritizing those who lost main IDR 600,000/month (3 months), then IDR 300,000/month
(Village Fund) source of income due to COVID-19 (3 months)
Source: World Bank staff compilation from various sources. Note: The written figure may be different from the Government-announced stimulus package.Key economic indicators (Indonesia)
Baseline Scenario 2019 2020e 2021f 2022f
Real GDP (Annual percent change) 5.0 0.0 4.8 6.0
Consumer price index (Annual percent change) 2.8 2.6 2.8 3.0
Current account balance (Percent of GDP) -2.7 -1.9 -2.0 -2.1
Government budget balance (Percent of GDP) -2.2 -6.3 -4.1 -3.1
Severe Scenario
• Under the assumptions of longer mobility restrictions and deeper global economic contraction, the annual real GDP
growth is estimated to reach -2.0 percent in 2020.
Source: Bank Indonesia; Central Bureau of Statistics (BPS); Ministry of Finance; World Bank staff calculations
Note: 2020-2022 are estimated and forecast figures.
Overall, the recovery will be gradual and GDP is
expected to be flat in 2020, contributing to a
narrowing of the current account deficitChange in the poverty rate in 2020 from
2019 under multiple scenarios
(poverty rate in percent)
2.5
2.2
2
1.5 1.3
1
0.5
0
Without Government
-0.5 -0.4
-0.7
support, millions
-1
-1.2
would fall into
-1.5
No Additional SA Full Additional SA No Additional SA Full Additional SA
poverty
No Covid19 Mild Impact Severe Impact
Source: BPS, World Bank staff calculation.
Note: Benchmark level refers to forecasted changes in poverty level in 2020 without Covid-19 (Poverty rate = 8.7
percent). ‘SA’ stands for Social Assistance. Mild impact assumes zero growth, whereas Severe Impact assumes-2
percent growth. ‘No additional SA’ refers to change in poverty rate relative to the pre-crisis level when there is absence
of government compensation; ‘Full Additional SA’ scenario shows 2020 poverty rate (simulated), after taking into
account the full social assistance package. 1 percentage points of poverty equals 2.6 million individuals.Household-Heads who received
Social Assistance Programs*
(percentage of household-heads)
Do not receive any Social Assistance Program Receive any Social Assistance Program
HH-head experiencing HH-head experiencing job
HH Bottom 40 income loss loss
49 44
54
Assistance needs to
reach more of those
in need to fulfil its
56
46 51
full potential to
mitigate the shock Source: World Bank staff calculation.
Note: The above figure presents number of surveyed household-head who receive any kinds of social assistance as
of Round 1 Hify Survey (1-17 May 2020). (*) includes PKH, Sembako, BLT, Kartu Pra-Kerja, public worksThe Long (and Road to
Winding) Recovery
Jalan panjang yang berliku
Namun kuharus mampu menempuhMUDAH
MENYEBAR
Now the road to recovery has three sharp
curves that policy makers must handleHandling the pandemic curve
(daily confirmed new COVID-19 cases, thousands)
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Source: Our World in Datasample-
based testing to regularly track and monitor infection Robust health
More tests
system
preparedness
to handle the
pandemic
Trace and isolate
curve gives
safety and
Expanding the capacity of the health care system to confidence for
meet possible surges in COVID-19 cases while being the recovery
Readiness able to continue basic health services
to care for all15
30
45
60
75
90
0
82
YoY sales drop
Large sales drop
74
(>20%)
Reduced cashflow June 2020, percent
71
availability
Reducing labor
costs 65
Difficulty repaying
21
loans
Difficulty paying 20
wages
Difficulty paying
13
Share of firms experiencing difficulties in May and
utilities
9
Difficulty paying rent
5
Filed for bankruptcy
Turning around the recession curve…Addressing
Dynamic database challenges in
delivering
social
the elderly and people living with
disabilities can also be targeted
assistance will
Broaden target groups
help families
today and
tomorrow
Reach the ‘missing middle’
and ‘newly poor’Firms across
Keep the lights on many sectors
will still need
help to stay
Support to start, restart afloat - and
and expand production
then to start
and restart
Uneven pace of recoveryAvoiding
spillovers
Restructuring or relief? from the real
to the
financial
sector and
Expand resolution to boost
system resilience
deepening
reforms is
critical to the
recovery
Keep minimum prudential
standards…and accelerating towards recovery
The Omnibus
Bill has the
potential to
Openness=Investment=Jobs
turbocharge
the economic
recovery, but
Indonesia joins GVCs
some proposed
reforms could
be detrimental
Avoiding pitfallsWorkers
seeking jobs in
Minimize dropouts
the post-
COVID
economy are
likely to
require
Incentivize skills acquisition
different and
often higher-
order skills
Improve labor market
information systemsIncreasing public resources available for
infrastructure at all levels of government and
across sectors – including expanding digital Resuming the
More public resources connectivity – remains key to competitiveness effort to close
Public funds will not be sufficient – improving
Indonesia’s
the regulatory, institutional and financial
large
environment for private sector infrastructure
Better laws & institutions participation in infrastructure is needed gap will be key
to the post-
Recalibrating the role and incentives of
SOEs will catalyze private sector entry,
Covid recovery
increase competition, and boost
SOEs need to make room infrastructure quality
for the private sectorFlattening the debt curve
Central Gov Debt-to-GDP Ratio, percent If Indonesia does not flatten the debt
Post-Covid
40 with no curve, mounting interest payments
can reduce fiscal space, undermine its
reforms
38
hard-earned investment-grade rating
36
and derail the recovery
34
32
30
28
Pre-Covid
26
24
2017 2018 2019 2020 2021 2022 2023 2024Reallocation
Subsidize people, not
and
products elimination of
subsidies will
Share of central government spending in 2018, percent help increase
14
12 10.6
12.7
investments in
10 infrastructure
and human
8
6 4.9
capital…
3.9
4
2.3
2
0
Fertilizer Energy Social Health Capital
subsidies subsidies assistanceMore firms should be brought under the scope of
major taxes such as the VAT and CIT …but given
Inclusive taxation
spending
needs, only
Raise personal income taxes, including in the tax reforms
middle, while also ensuring that those who have can stop
Gotong Royong more, contribute more Indonesia
from climbing
Expand the use of excise taxes on tobacco, plastics, further along
sugar-sweetened beverages and fuel to raise the debt curve
Excise taxes are revenues and create incentives to reduce use
smart taxesIndonesia Economic Prospects July 2020
The Long Road to Recovery
Terima Kasih
Questions
fgilsander@worldbank.org
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www.worldbank.org/iep
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