In a matter of days, 2023 will pass. This year has been replete with cautions. Apart from the unstable economic conditions post-COVID-19, the Russia-Ukraine war, and the Palestinian-Israeli crisis, concerns regarding climate change are also growing.

Indonesia currently has to deal with a prolonged El Nino. The year 2023 is arguably an ordeal. Entering 2024, the Indonesian Government welcomes it with more optimism.

According to the Minister of Finance Sri Mulyani Indrawati at the National Seminar on Indonesian Economic Outlook 2024 held at the St. Regis Hotel in Jakarta on Friday, 22 December, Indonesia's economic growth in 2024 can still be maintained above 5 percent.

Previously, in the 2024 Macroeconomic Framework and Principles of Fiscal Policy (KEM-PPKF), economic growth was pegged at 5.3%-5.7%. However, this range has since been revised down to 5.1%-5.7%. In the end, the government and the  House of Representatives agreed to set economic growth at 5.2%, in accordance with the macro assumptions of the 2024 State Budget.

Several factors contribute to the optimistic outlook on Indonesia's economy. Among these is the improvement of the global economy. International institutions’ forecasts that 2023 would be a bleak year for the economies of a number of major countries due to rising interest rates were not entirely realized.

In fact, "For America, there seems to be hope because of the resilience of its economy until the end of this year (2023-Ed). So that at least the world's largest economy can withstand extraordinary interest rate hikes," the Minister explained.

The Minister's optimism falls in line with the predictions of a number of foreign institutions. In the 2024 Global Economics Outlook: The Last Mile Morgan Stanley, for example, reported that the Indonesian economy will grow consistently in the range of 5% until 2025. In 2023, Indonesia's economic growth was estimated at 5%, then 5.1% in 2024, and 5.2% in 2025.

In Indonesia, Morgan Stanley wrote, growth momentum will remain strong, with the driving factor shifting to a recovery stage that tends to be supported by capital expenditure and consumption, rather than commodity exports.

Remain Vigilant

Despite being filled with optimism, the Indonesian Government maintains a state of vigilance. The reason is that various dynamics that occur at the global level are predicted to have a strong influence on global economic growth. The IMF, for example, in its outlook as of October 2023, has estimated that economic growth in 2024 will only be able to amount to 2.9%, a decrease from the projection for 2023 of 3%. The projection has also fallen from the 2022 condition of 3.5%. The World Bank estimates that 2024 will only grow by 2.4%, slightly higher than 2023's growth of 2.1%.

A number of factors, including persistently high global inflation, the weakening of the Chinese economy, and commodity price volatility, have the potential to weigh on the trajectory of the global economy and have repercussions on the domestic economy.

Commodity price volatility is mainly still triggered by the escalation of global conflict tension, such as the Ukraine-Russia war and Palestine-Israel crisis, geo-economics fragmentation, shocks due to climate change, limited fiscal policy globally, and increased risk of a world debt crisis.

Facing these uncertainties, Minister of Finance Sri Mulyani advised all parties to remain vigilant. The government has formulated a number of measures. Among other things, it is working hard to maintain domestic demand because the consumption of the lower middle class is huge. Consequently, the government persists in its efforts to maintain inflation and escalate food prices.

The issue regarding food, which has been emphasized since the start of 2023, is critical to consider. This is also the case with various policies, such as incentives for the purchase of houses and cars, and others. This is expected to maintain the supply side. On the other hand, the government continues to encourage the middle class, which still has purchasing power, to continue to grow.

Furthermore, tax-wise, high growth is sought. This is to encourage future economic growth. However, Minister of Finance Sri Mulyani cautioned that this is a critical point for Indonesia because it must maintain the momentum of growth which is the tax base.

"The growth of our tax revenue this year is still 7 percent, so it's quite remarkable despite a substantial increase in the baseline. This will cause the tax ratio to improve and then we will focus on spending better, even though this is the last term of President Jokowi. Perhaps the critical point is the quality of spending and the speed of spending," she explained.

The Minister of Finance revealed that high and sustainable economic growth must also be spurred by productivity through improvements in infrastructure and the quality of Indonesia's human resources (HR). In addition, the Minister assessed that the state budget must also be kept healthy to withstand various disruptions that will arise next year.

"The State Budget has always been a very effective countercyclical and shock absorber since the start of the pandemic or even before the pandemic. It is possible, provided that the state budget is robust and credible. That's why in addition to the human resources and infrastructure issues for productivity, keep the APBN healthy, strong, and credible," the Minister said.

Inter-authority Synergy

The approach in managing the 2024 economy was also communicated by Bank Indonesia Governor Perry Warjiyo. At the 2023 Bank Indonesia Annual Meeting, Perry reminded that in facing various economic pressures in 2024, inter-authority policy synergies need to be strengthened, namely by optimizing targets, policy instruments, and the effectiveness of their transmission.

Policy synergy in the economic sector, especially in terms of the synergy of the economic policy mix, needs to be further strengthened in five important areas, namely fiscal and monetary policy, financial system stability, digitalization of the financial economy, downstream, as well as trade, investment, and infrastructure.

"Once again, the global atmosphere will not be amicable in 2024. We must remain optimistic and move forward with confidence. With one spirit of synergy to protect the nation state and the people from global turmoil in the economic, political, and other fields," Perry said.

International institutions have also issued several policy recommendations so that Indonesia can maintain its economic resilience amid global uncertainty. One of the recommendations was issued by the World Bank.

In the Indonesia Economic Prospects December 2023 document, the World Bank suggested that Indonesia should capitalize on its already strong economic fundamentals to achieve faster, greener, and more inclusive economic growth.

To do so, it is important to continue implementing reforms that remove barriers that limit efficiency, competitiveness, and productivity growth.

By doing so, Indonesia stands a good chance of accelerating growth, creating more and better jobs, and achieving its vision of becoming a high-income country by 2045.(*)

Writer: Dwitri Waluyo
Editors: Ratna Nuraini/Elvira Inda Sari/Siti Chodijah
Translator: Aisah Amanda