Jakarta, CNBC Indonesia – The Organization for Economic Co-operation and Development (OECD) believes that the Indonesian economy will still be attractive to foreign investors. Although now foreign capital tends to leave Indonesia (outflow) from the financial markets.
According to the OECD, Indonesia will still be attractive to investors, thanks to the government’s steps in stabilizing the macroeconomy and stepping up structural reforms.
Therefore, fiscal and monetary policies must be managed properly and it is recommended to remain restrictive.
“Fiscal and monetary policies must remain tight, while support for vulnerable households must be maintained,” the OECD explained in its November 2022 Economic Outlook report, quoted on Thursday (24/11/2022).
As is known, the government has decided to reduce the state budget deficit to below 3% or to be more precise 2.84% of the gross domestic product (GDP) in the 2023 fiscal year.
Meanwhile, the government is also targeting the state revenues in the 2023 state budget of IDR 2.463 trillion, which comes from tax revenues of IDR 2.021.2 trillion and non-tax state revenues (PNBP) of IDR 441.4 trillion .
Meanwhile, the state expenditure in the 2023 APBN was agreed at IDR 3,061.2 trillion, which was allocated through central government spending of IDR 2,246.5 trillion and transfers to regions and village funds (TKDD ) of IDR 814.7 trillion.
“Various socio-economic groups, such as young people, women, remote villages and people with disabilities, remain vulnerable to post-pandemic scarring effects and rising inflation,” explained the OECD.
Therefore, according to the OECD, it is very appropriate to provide vulnerable groups with adequate social support, to make sure they are targeted and to improve the social assistance system.
From a monetary point of view, the OECD believes that, thanks to its independence, Bank Indonesia (BI) has managed to gain the necessary credibility over the years to normalize monetary policy.
“Through early, pre-emptive and forward-looking steps at a more gradual pace than in other developing countries,” he explained.
With the BI 7 Days Repo Rate (BI-7DRR) at 5.25% this month, the OECD estimates that the policy rate will increase by another 25 basis points in early 2023 and then remain stable for several periods.
Most financial indicators, assessed by the OECD, have shown greater resilience to previous global economic turmoil.
The bank has also formed adequate cash buffers to deal with massive non-performing loans (NPLs) aka bad loans next year.
“Non-performing loans are likely to increase after the restructuring program stops early next year (March 2023),” the OECD explained.
“However, interest payments on government debt absorb a relatively large share of Indonesia’s budget, reflecting Indonesia’s low fiscal effort, and the Ministry of Finance is exposed to exchange rate fluctuations.” the OECD said again.
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