Quarterly December 2015 Reforming amid uncertainty Ndiam Diop - - PowerPoint PPT Presentation

December 15, 2015

Indonesia Economic Quarterly December 2015 Reforming amid uncertainty

Ndiamé Diop Lead Economist, Indonesia

Introduction

Coming to the end of a challenging year,

• unfavorable external conditions

persist…

• … and man-made fires and haze have

contributed to moderating growth. In this difficult environment

• considerably higher public capex

disbursement has supported growth…

• … and seven policy packages are

signaling strong reform intent. Looking to next year, sustaining the reform momentum is the best strategy for Indonesia.

3

Major recent economic developments Recent policy response Outlook and risks

Fires and haze cost IDR 221 trillion (1.9% of GDP) in just five months…

Bubble size indicates total provincial disaster costs; cost in percent of provincial GDP (y-axis); area burned, thousand hectares (x-axis)

Note: Losses do not account for the economic benefit to those who set fires. Source: Bogor Agricultural University; BPPT; BPS; CIFOR; media reports; Ministry of Health; regional governments; World Bank staff calculations

Jambi Riau South Sumatra West Kalimantan South Kalimantan Central Kalimantan East Kalimantan Papua

• 5

5 10 15 20 25 30 35 40 100 200 300 400 500 600 700 800

… which is more than twice the cost of rebuilding Aceh after the tsunami…

USD billion

Source: World Bank staff estimates

7 16.1 2 4 6 8 10 12 14 16 18 2004 Aceh tsunami 2015 fires and haze

…reducing growth materially in affected provinces…

Source: BPS; World Bank staff calculations

Real GDP growth year on year in 2015, percent

• 0.9

12.8

• 3.5
• 0.6
• 6
• 4
• 2

2 4 6 8 10 12 14 East Kalimantan Papua Q1 Q2 Q3

… having devastating social and environmental consequences…

• At least 19 deaths, 500,000 incidences
• f respiratory illness;
• IDR 2.1 trillion in immediate health

costs; long-term cost likely much higher;

• ~4.7 million children stayed away from

school (for up to 34 days in some regions)

• IDR 540 billion in costs due to school

closures; difficult to quantify long-term impact of regular closures on graduation rates and productivity;

• IDR 59 trillion in biodiversity losses and

loss of carbon storage

… and contributing to the growth moderation and rise in unemployment

GDP growth, percent per year*; Number of net new jobs created

Note: Q1-Q3 data for 2015. Source: BPS; World Bank calculations

500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 2010 2011 2012 2013 2014 2015 Job creation (RHS) GDP growth

9

Major economic developments Recent policy response Outlook and risks

Higher public spending supported growth in Q3 2015

Note: * Real capital expenditure is calculated using the implicit total fixed investment deflator with 2010 base from the national accounts Source: Ministry of Finance; World Bank staff calculations

Real capital expenditure growth yoy, percent*

• 60
• 40
• 20

20 40 60 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15

Significant improvement of the composition

• f spending in the 2016 Budget

Source: Ministry of Finance; World Bank staff calculations

IDR trillion 50 100 150 200 250 300 2014 2015* 2016** Fuel subsidy Infrastructure Social assistance Health

Direct transfers to villages will increase substantially over five years…

Source: Ministry of Finance; World Bank staff calculations

Total fiscal transfers to villages 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 20 40 60 80 100 120 140 160 180 200 2015 2016 2017 2018 2019 Percent of GDP IDR trillion

Reduction of regulatory burden and promotion of investment

Number of restrictive measures on trade and investments, June 2009-to date

Seven economic policy packages focusing on

• Regulatory

simplification;

• Support to SMEs;
• Minimum wage

determination;

• Special economic

zones;

• Tax relief.

Signal intention to join the Trans-Pacific Partnership (TPP)

50 100 150 200 250 Passed Implemented

Source: Global Trade Alert (accessed 13/11/2015); World Bank staff calculations

14

Major economic developments Recent policy response Outlook and risks

Baseline outlook is unchanged, with risks to the downside

Note: Revisions are relative to October 2015 IEQ. Source: BI; BPS; World Bank staff projections

December 2015 IEQ

Revisions

(percentage change, unless otherwise indicated)

2014 2015p 2016p 2015 2016 Real GDP 5.0 4.7 5.3 0.0 0.0 Consumer prices 6.4 6.3 4.6

• 0.2
• 0.6

Current account balance (% of GDP)

• 3.1
• 2.0
• 2.4

0.0 0.2

Risk 1. Global growth may disappoint

• nce again…

Real GDP growth in OECD countries, percent qoq-saar

Source: OECD; World Bank staff calculations

0.0 0.5 1.0 1.5 2.0 2.5 3.0 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15

Risk 2. Weak revenues may constrain growth prospects

Source: Ministry of Finance; World Bank staff calculations

IDR trillion 1,762 1,650 1,100 1,822 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2015 Revised Budget 2015 Revised

• utlook

2015 Jan-Oct realization 2016 Budget Tax revenues Non-tax revenues Total revenues

Risk 3. Impact of the village transfers

Source: Village Potential Statistics (PODES) 2011; National Social Economic Survey (SUSENAS) 2013; World Bank staff calculations

Millions, LHS; IDR thousands, RHS 200 400 600 800 1000 1200 5 10 15 20 25 30 1 2 3 4 5 6 7 8 9 10 Number of poor and near poor (LHS) Median 90% DD per capita (RHS) 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

National-to-District (tranche I) District-to-Village (tranche I)

Note: Sample includes 314 districts and 55,469 villages. Source: Ministry of Finance; Coordinating Ministry of Human Development and Culture/World Bank Diagnostic Survey, November 2015; World Bank staff calculations

Dana Desa disbursement, percent