IMF Executive Board Concludes 2022 Article IV Consultation with Indonesia

March 22, 2022

Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Indonesia.

As elsewhere, the COVID‑19 pandemic has led to tragic loss of life and triggered a major economic downturn in Indonesia. The authorities have responded with a bold and comprehensive, and well-coordinated policy package that has successfully maintained economic and financial stability. With the recovery underway, they have begun to withdraw the exceptional support measures. Nevertheless, the pandemic has caused scarring and reinforced the need to tackle longstanding challenges, including a low revenue intake and shallow financial markets.

The Indonesian economy is recovering at a brisk pace. The Delta variant surge slowed the economic recovery in mid‑2021, but growth picked up in the fourth quarter and is expected to strengthen over 2022−23. IMF staff project GDP growth at 5.4 percent for 2022 and 6.0 percent in 2023, supported by favorable global commodity prices, easing restrictions on activity, continued policy support, and rising mobility and confidence as the vaccination program expands into more remote areas. Inflation has remained lower than in other emerging and advanced economies, allowing Bank Indonesia (BI) to support the recovery through accommodative policies, and is expected to rise gradually within the inflation target range in 2022. The outlook is improving but the balance of risks remains tilted to the downside.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for maintaining macroeconomic and financial stability despite the severe impact of the COVID‑19 pandemic, helped by substantial policy buffers accumulated over years of strong macroeconomic performance. While the outlook is improving, the balance of risks remains tilted to the downside. As the recovery takes hold, Directors considered that it would be appropriate to gradually phase out the exceptional policy support deployed during the pandemic and encouraged the authorities to press ahead with structural reforms.

Directors agreed that the authorities’ gradual withdrawal of fiscal policy support would be appropriate. They noted that restoring the pre-pandemic 3 percent of GDP budget deficit ceiling in 2023 will bolster the credibility and sustainability of the fiscal framework. Directors supported the authorities’ plans to develop a medium-term revenue strategy to finance high priority spending critical to achieving Indonesia’s development goals. Savings from energy subsidy reforms could also be used to strengthen the social safety net.

Directors noted that monetary policy has remained appropriately accommodative to support the recovery. They welcomed the authorities’ commitment to stay ahead of the curve and urged them to closely monitor developments to ensure that inflation and inflation expectations remain well anchored. While the temporary deployment of additional policy tools has helped to successfully contain bouts of market volatility, Directors encouraged the authorities to end central bank primary market purchases and allow the policy rate to provide a clearer signal of the monetary stance. They also highlighted the role of exchange rate flexibility in absorbing shocks.

Directors noted that the Indonesian financial sector remains stable, and that intensive supervision is necessary while crisis-related regulatory relief is in place. They welcomed the authorities’ efforts to promote financial deepening and inclusion, including through an extensive digitalization agenda and measures to reduce information asymmetries, through credit information sharing, which should support the recovery of credit markets.

Directors commended the Indonesian authorities for their ambitious structural reform agenda. They encouraged the authorities to maintain the momentum with labor and financial market reforms aimed at increasing investment, boosting growth, and mitigating the scarring effects of the pandemic. Improvements to education, women’s labor force participation, and governance frameworks can also support medium-term growth.

Directors welcomed the authorities’ efforts to tackle climate change and took positive notes of their recent climate change mitigation measures. They encouraged the authorities to undertake further reforms, including on energy subsidies, measures on carbon pricing and the emission trading system, and fostering a green financial market.


[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

Indonesia: Selected Economic Indicators

2018

2019

2020

2021

2022

2023

Est.

Proj.

Proj.

Real GDP (percent change)

5.2

5.0

-2.1

3.7

5.4

6.0

Domestic demand

6.3

4.0

-3.8

2.9

4.7

6.1

Of which:

Private consumption 1/

5.1

5.2

-2.7

2.0

4.9

5.9

Government consumption

4.8

3.3

2.0

4.2

4.7

4.0

Gross fixed investment

7.9

4.5

-5.0

3.8

5.2

7.1

Change in stocks

0.4

-0.6

-0.7

0.1

-0.2

0.0

Net exports 2/

-1.0

1.4

1.4

1.0

0.9

0.3

Saving and investment (in percent of GDP)

Gross investment 3/

34.6

33.8

32.4

31.5

31.0

31.3

Gross national saving

31.6

31.1

31.9

31.9

31.0

29.8

Prices (12-month percent change)

Consumer prices (end period)

3.2

2.6

1.7

1.9

3.5

3.2

Consumer prices (period average)

3.3

2.8

2.0

1.6

2.9

3.3

Public finances (in percent of GDP)

General government revenue

14.9

14.2

12.5

13.6

13.2

13.2

General government expenditure

16.6

16.4

18.6

18.2

17.1

16.2

Of which : Energy subsidies

1.0

0.9

0.7

0.8

0.9

0.7

General government balance

-1.8

-2.2

-6.1

-4.6

-4.0

-3.0

Primary balance

0.0

-0.5

-4.1

-2.6

-1.3

-0.5

General government debt

30.4

30.6

39.8

42.8

42.9

42.9

Money and credit (12-month percent change; end of period)

Rupiah M2

6.3

6.5

12.5

13.9

8.4

9.0

Base money

0.2

2.9

0.4

19.3

8.8

4.7

Claims on private sector

10.3

5.8

-0.4

6.1

9.2

9.7

One-month interbank rate (period average)

6.3

6.5

4.5

3.6

…

…

Balance of payments (in billions of U.S. dollars, unless otherwise indicated)

Current account balance

-30.6

-30.3

-4.5

4.7

-0.8

-20.6

In percent of GDP

-2.9

-2.7

-0.4

0.4

-0.1

-1.5

Trade balance

-0.2

3.5

28.2

43.9

43.3

25.9

Of which : Oil and gas (net)

-11.4

-10.3

-5.4

-9.7

-6.7

-11.5

Inward direct investment

20.6

23.9

18.5

20.2

22.1

24.5

Overall balance

-7.1

4.7

2.6

9.0

14.2

10.8

Terms of trade, percent change (excluding oil)

0.8

-2.3

-5.6

8.9

2.9

-2.8

Gross reserves

In billions of U.S. dollars (end period)

120.7

129.2

135.9

144.9

159.1

169.9

In months of prospective imports of goods and services

7.1

9.7

7.9

7.4

7.3

7.1

As a percent of short-term debt 4/

201

204

209

213

224

226

Total external debt 5/

In billions of U.S. dollars

375.4

403.6

417.0

436.8

454.4

488.1

In percent of GDP

36.0

36.0

39.3

36.8

35.4

34.8

Exchange rate

Rupiah per U.S. dollar (period average)

14,235

14,152

14,529

14,297

…

…

Rupiah per U.S. dollar (end of period)

14,390

13,866

14,050

14,253

…

…

Memorandum items:

Jakarta Stock Exchange (12-month percentage change, composite index)

-2.5

1.7

-5.1

10.1

…

…

Oil production (thousands of barrels per day)

810

805

806

803

800

797

Nominal GDP (in trillions of rupiah)

14,839

15,833

15,438

16,971

18,471

20,220

Sources: Data provided by the Indonesian authorities; and IMF staff estimates and projections.

1/ Includes NPISH consumption.

2/ Contribution to GDP growth (percentage points).

3/ Includes changes in stocks.

4/ Short-term debt on a remaining maturity basis.

5/ Public and private external debt.

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