Indonesia after the COVID-19 Recession – Building a Resilient and Inclusive Economy
18 March 2021, Paris & Jakarta (via Zoom)
@OECD
@OECDeconomy
http://www.oecd.org/economy/indonesia-economic-snapshot/
OECD ECONOMIC SURVEY OF
INDONESIA 2021
2
Covid-19 hit the economy hard
1. Other G20 EMEs include Argentina, Brazil, China, India, Mexico, Russia, Saudi Arabia, South Africa, and Turkey.
Source: OECD Economic Outlook 108 database updated.
-4 -2 0 2 4 6 8
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
% Real GDP growth rate
IDN
Other G20 EMEs¹
3
The pandemic interrupted
a long spell of sustained growth
Note: Indonesia’s GDP as a share of OECD and ASEAN GDP, computed at 2010 USD PPP. ASEAN GDP is the sum of Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Source: OECD Economic Outlook, No. 108 updated; World Bank, World Development Indicators.
0 5 10 15 20 25 30 35 40 45
0 50 100 150 200 250 300
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Real GDP, 2001=100 %
Indonesia (left)
GDP p/c IDN (as % of OECD) (right)
GDP IDN (% of ASEAN) (right)
4
Poverty has trended down
Source: BPS.
8 9 10 11 12 13 14
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% Incidence of poverty as a share of total population
5
The sovereign risk premium has decreased but remains high
Source: OECD Main Economic Indicators database.
- 500 0 500 1 000 1 500 2 000 2 500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Basis points
IDN BRA RUS CHN ZAF TUR
6
Public debt will rise, but remain sustainable
Note: In all scenarios, GDP growth and inflation are in line with OECD Economic Outlook projections to 2021. The baseline scenario assumes constant GDP growth of 5.1% and inflation (in the GDP deflator) of 3% from 2022. The primary budget deficit is 0.5% from 2022. The effective interest rate is converging to 6% from 2022. The
“larger primary deficit” is an alternative scenario that assumes a primary deficit of 0.8% of GDP from 2022 onwards. In the “higher interest rate” scenario, the effective interest rate is assumed to rise by 150 basis points by 2023.
Source: OECD Economic Outlook, No. 108; IMF, World Economic Outlook database; and OECD calculations.
0 5 10 15 20 25 30 35 40 45 50
2010 2015 2020 2025 2030 2035 2040
Baseline Larger primary deficit Higher interest rate
% of GDP
7
Tax revenue is low
Note: 1. Value for other G20 emerging market economies is computed as a simple average of Argentina, Brazil, Mexico, South Africa, and Turkey. 2. OECD average represents unweighted average of the OECD member countries that are available in the database. 3. Tax on production and imports represents a subcategory of Goods and services tax. 4. Environmental taxes cut across the classifications, and it shall not be considered as an exclusive, or belonging to any specific classification. https://www.oecd- ilibrary.org/taxation/revenue-statistics-2019_0bbc27da-en.
Source: OECD Tax Revenue Statistics, and OECD Green Growth Indicators.
0 5 10 15 20 25 30 35 40 %
A. Tax revenue as a % of GDP, 2018 Indonesia Other G20 EMEs¹ OECD
0 5 10 15
Environmental taxes⁴ Other Tax on production and imports³
Goods and services tax Property tax Payroll and workforce tax Social security contributions Corporate income tax Personal income tax
% of GDP B. Contribution to tax revenue
Indonesia - 2018
OECD average - 2018²
• Prolong measures directed at providing financial support to households and businesses to protect livelihoods and employment.
• Plan for fiscal consolidation over the medium run but avoid a premature and abrupt removal of stimulus.
• Maintain an accommodative monetary stance as long as inflation is within target, with forward guidance on
normalisation.
• Step up efforts to raise tax revenue.
• Phase out “burden sharing” agreement, as envisaged.
• Continue to foster Bank Indonesia’s independence.
8
Key recommendations for mitigating the
impact of the COVID 19 pandemic
IMPROVING THE BUSINESS CLIMATE, PROTECTING THE
ENVIRONMENT
9
10
Pervasive restrictions discourage FDI
Note: The FDI Regulatory Restrictiveness Index (FDI RI) measures statutory restrictions on foreign direct investment in 22 economic sectors across 69 countries, including all OECD and G20 countries. Countries in blue are G20; countries in green are ASEAN.
Source: OECD the FDI Regulatory Restrictiveness Index https://www.oecd.org/investment/fdiindex.htm.
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40
PHL IDN THA RUS MYS CHN SAU IND LAO MEX CAN AUS BRN KOR VNM MMR USA BRA TUR SGP ZAF KHM JPN ITA FRA GBR ARG DEU
FDI RI
OECD average = 0.064
Average all = 0.108
11
Product market regulations are strict
Note: OECD average refers to the simple average of 37 OECD member countries.
Source: OECD Product Market Regulation database.
0.0 0.5 1.0 1.5 2.0 2.5 3.0
LT U LV A EST SVN CZ E HU N O ECD CH L PO L SVK ME X CO L TUR CR I ZAF BRA ARG IDN
12
Regulatory barriers to competition are high
Note: Index scale 0 to 6 from most to least competition-friendly regulation, 2018. OECD average refers to the simple average of 38 OECD member countries; most and least competition-friendly among all countries for which data are available.
Source: OECD Product Market Regulation database.
-0.5 0.5 1.5 2.5 3.5 4.5 5.5
Public ownership Involvement in
business operations Simplification and evaluation of
regulations
Administrative
burdens on startups Barriers in service and
network sectors Barriers to trade and investment Distortions induced by state involvement Barriers to domestic and foreign entry
Indonesia
Most competition friendly
Least competition friendly
OECD
13
Corruption is still perceived as high
0 20 40 60 80
ME X ID N BR A CO L TU R AR G HU N
ZAF SVK CZ E PO L LV A CR I LT U
SVN CH L EST
Corruption Perceptions Index Scale: 0 (worst) to 100 (best)
2020 2010
Source: Transparency International.
14
The transition to a greener economy could be quicker
Note: 1. Data refer to production based CO2emissions; 2. TPES stands for total primary energy supply; 3. Exposure to PM2.5 refers to mean population exposure to fine particulate matter that is calculated as the mean annual outdoor PM2.5 concentration weighted by population living in the area. It is the concentration level, expressed in micrograms per cubic meter (μg/m3), to which a typical resident is exposed throughout a year.
Source: OECD, Green Growth Indicators; OECD, Environmental risks and health; World Bank, World Development Indicators; IEA (2018), IEA World Energy Statistics (database); MoEMR (2020), 2019 Handbook of Energy & Economic Statistics of Indonesia.
0 50 100 150 200 250
2002 2004 2006 2008 2010 2012 2014 2016 2018 Index
2002=100
A. CO
2emissions
Real GDP CO emissons
210 13 16 19 22 25
Indonesia OECD Mean exposure to
PM2.5 (Left)³
μg/m³ 2000 2010 2019
0 20 40 60 80 100
Indonesia OECD Exposure to
>10 μg/m³ (Right)
%
B. Population exposure to PM
• Improve SOEs’ corporate governance to align it with global best practices.
• Always subject SOEs to competition law and hold them responsible for abusing their dominant market position.
• Review existing FDI restrictions, eliminate those that generate costs without producing benefits, and monitor the remaining ones.
• Limit direct awards only to current, urgent and unforeseeable needs, when there really is only one qualified supplier, and terminate them as soon as possible.
• Safeguard the independence and authority of the KPK to ensure the effective prevention, detection and
investigation of corruption.
15Key recommendations for striking the
right balance between State and markets
• Protect, rewet and restore peatlands and forests and increase the budget resources for environmental
protection agencies.
• Establish a carbon price on fossil fuels.
• Accelerate investment in public urban transport and pursue inter-modal integration.
• Confirm plans to reform buy-in tariffs, to make cost recovery possible and increase the share of
renewables in the energy mix.
16
Key recommendations
on environmental policies
INVESTING IN
COMPETENCES AND
SKILLS AND REFORMING THE LABOUR MARKET TO
CREATE BETTER JOBS
17
18
A demographic dividend but a fading boost
50 52 54 56 58 60 62 64 66 68 70
1960 1970 1980 1990 2000 2010 2018 2019
%
Indonesia OECD Middle-income countries
Source: World Bank, World Development Indicators.
Share of the population aged between 15 and 65 over total population
19
Ample room to improve schooling quality
0 2 4 6 8 10 12 14
ZAF LA O TU N IN D PH L ID N BR A SAU AR G CO L PER TH A MY S CR I CH N VN M O EC D RU S SG P
Years
Learning-adjusted years of school Estimated loss
Note: The estimated loss is the difference between the expected number of years of school (given enrolment ratio at successive ages) and the learning-adjusted years of school (incorporating test scores). OECD represents the simple average across 38 OECD countries.
Source: World Bank, Human Capital Index 2020 database.
20
Weak PISA score in mathematics
Source: OECD, PISA 2018 database.
PISA mean scores for pupils aged 15, 2018
0 100 200 300 400 500 600
CH N SG P JP N KO R NZ L AU S O EC D RU S TU R MY S AR E KAZ TH A UR Y CH L ME X CR I PER JO R LB N CO L BR A AR G ID N SAU MA R PH L
Mathematics
21
Lower spending per student than in peers
0 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000
ID N IN D
ZAF VN M MY S AR G RU S IN D VN M ID N
ZAF ME X AR G BR A TH A MY S IN D ID N ME X TH A
ZAF BR A AR G MY S VN M ID N IN D TH A AR G RU S BR A ME X
ZAF MY S
Pre-primary Primary Secondary Tertiary
USD PPP
Note: Initial government funding (excludes transfers received from foreign donors).
Source: UNESCO Institute for Statistics, Education database.
Public spending on education per student by education level, in USD PPP, 2018
22
Invest in early childhood education
0 10 20 30 40 50 60 70 80 90 100
IND ZAF IDN MYS TUN MEX CHN THA PHL
%
Source: UNESCO Institute for Statistics, Education database.
Percentage of new entrants to grade 1 of primary education
with early childhood education experience, 2018 or latest
23
Indonesia risks lagging behind worldwide digitalisation
0 10 20 30 40 50 60 70 80 90 100
ARG MEX IDN IND MIC BRA MYS CHN TUN SAU
%
Note: MIC stands for middle-income countries according to World Bank Income Groups classification.
Source: UNESCO Institute for Statistics, Education database.
Percentage of upper-secondary schools with access to computers for pedagogical purposes
2018 or latest
24
Tertiary education: higher enrolment but with performance gaps across institutions
0 10 20 30 40 50 60 70 80 90 100
ZAF IND VNM TUN PHL IDN MIC MEX MYS THA CHN BRA RUS SGP ARG
%
Note: MIC stands for the average of middle-income countries according to World Bank Income Groups classification.
Source: UNESCO Institute for Statistics, Education database.
Gross enrolment ratio, tertiary education, in percentage of the official school-age population, 2018 or latest
• Consider lowering the starting age of compulsory education.
• Review the level of statutory minimum wages in each province.
• Promote female employment through:
– public campaigns
– lifelong training programmes – more childcare facilities
– laws promoting gender equality.
• Pilot lower levels of employment protection and discounted minimum wages for youth in SEZs. If successful, extend them.
• Expand the unemployment insurance scheme.
• Invest more in ICT infra-structure for pedagogical purposes.
25
Key recommendations for expanding skills and
well-being
26
For more information
Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
