2021 Growth Scenario

KOMPAS/HERU SRI KUMORO

President Joko Widodo delivers his opening statement for a limited Cabinet meeting on Thursday (19/3/2020) via video link, streamed live to the Presidential Secretariat\'s YouTube channel and the streaming site of Jakarta’s Merdeka Palace (http://web-streaming.istanapresiden.go.id). In opening the meeting to hear and discuss the Covid-19 task force’s report, the President called for more rapid and wider testing, as well as expanding testing points. He also called for a clear and simple health protocol, preparing the Kemayoran Athletes Village as a quarantine facility, and maximum protection for medical workers treating Covid-19 patients.

The resurgence in daily COVID-19 cases has forced the government to prepare two scenarios for the country’s economic growth in 2021. (Kompas, 8/7/2021).

The two scenarios, the moderate and the severe scenario, are based on our success in handling the resurgence in daily COVID-19 cases.

If economic growth in 2021 was previously projected at 4.5 to 5.3 percent, in the moderate and the severe scenarios, it is projected at just 4.5 percent and 3.7 percent, respectively.

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The spike in COVID-19 cases and the implementation of emergency community activity restrictions (PPKM Darurat) to prevent further transmission have also forced the government to reallocate and refocus budget spending. For example, expenditures at ministries/institutions, worth Rp 26.2 trillion, have been reallocated to the health sector and social protection for the poor and vulnerable groups.

The government\'s policy to focus on efforts to reduce the number of daily cases and their impact on the welfare of the poor and vulnerable groups is considered the right step, even though it will affect the economic recovery program.

The success of public mobility restrictions coupled with the acceleration of the vaccination program will determine how fast Indonesia can get out of the COVID-19 crisis.

However, increasing the budget, without improving the effectiveness of its implementation in the field, can hinder the achievement of these expected goals. At present, there are still many complaints related to the low disbursement of the National Economic Recovery (PEN) budget, with much of the social assistance or financial stimulus failing to reach the targeted recipients because of unintegrated data and problems in the distribution mechanism.

AP PHOTO/DITA ALANGKARA

A drink vendor rides his bicycle reflected in a puddle in the main business district in Jakarta, Indonesia, Thursday, Nov. 5, 2020. Indonesia\'s economy entered its first recession since the Asian financial crisis more than two decades ago as the country struggles to curb the coronavirus pandemic under control.

In response to the COVID-19 crisis, the government has taken an expansionary and loose fiscal policy. The state budget remains the backbone for accelerating economic recovery, especially with the business world not yet recovering. Meanwhile, apart from the burden of handling COVID -19, we must also not forget the foundation of long-term broad-based growth.

This includes through the development of basic infrastructure and connectivity to attract investment and to drive higher-value added activities.

The state budget is required to support structural reforms in order to overcome structural problems to prepare the economy to grow faster, in line with the global economic recovery. This includes through the development of basic infrastructure and connectivity to attract investment and to drive higher-value added activities.

The heavy burden of the state budget makes consolidation and fiscal sustainability a crucial challenge for the government in the medium term, especially in an effort to boost state revenues (especially from taxes), expand fiscal space and to bring back the state budget deficit to a maximum level of 3 percent of gross domestic product (GDP) by 2023.

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At the same time, we are also faced with other challenges, namely readiness to mitigate the uncertainty caused by the ongoing pandemic and the changes in the global economy, including the impact of the United States\' faster-than-expected economic recovery.

(This article was translated by Hendarsyah Tarmizi).