IMF Projects Indonesia’s Economic Growth to Reach 5% in 2023, Higher than Previous Forecast

International Monetary Fund (IMF)

The International Monetary Fund (IMF) has predicted that Indonesia’s economy will grow by 5 percent in 2023, which is higher than its previous forecast of 4.8 percent in the World Economic Outlook (WEO) report of January 2023.

The projection of economic growth from IMF has been revised upwards for 2023 due to the expected maintenance of the current account balance and the anticipated influx of foreign direct investment and portfolio.

Cheng Hoon Lim, Assistant Director of the IMF Western Hemisphere Department, stated that Indonesia’s appropriate, well-directed, and well-coordinated policies have led the country to overcome the challenging year of 2022 with healthy growth.

Furthermore, Lim remarked that the rate of Indonesia’s inflation growth is also well-controlled, and the financial system is stable. According to Lim, policymakers have utilized flexible monetary and fiscal policy space to dampen significant global fluctuations, placing Indonesia’s economy in a favorable position to continue strong and inclusive growth.

“The economy continues to grow strongly. Supported by high commodity export prices, GDP grew by 5.3 percent in 2022. Growth is projected to remain strong, slightly decreasing to 5 percent in 2023, in line with the normalization of commodity prices amid tighter policies,” Lim said in an official statement on Friday, March 24, 2023.

Lim stated that global risks to the domestic economy, in general, remain reasonably guarded. A faster recovery in China or a reduction in global inflationary pressure, according to him, could strengthen Indonesia’s export demand.

On the other hand, Lim stated that the tightening of global financial conditions or global deceleration that weakens the trade balance may put pressure on the rupiah. Another risk comes from lingering geopolitical tensions that are predicted to disrupt supply chains and strengthen inflationary pressure.

Furthermore, the Ramadan and Eid al-Fitr moments are expected to boost economic growth.

This is because Ramadan and Eid al-Fitr will increase demand and the influx of circulating money, which could provide additional fuel for economic growth.

Joshua Pardede, the Chief Economist of Bank Permata Tbk, confirmed this view when contacted on Thursday, March 23, 2023.

In addition, the loosening Covid-19 pandemic will also drive an increase in the number of travelers to other regions. This will also have a positive impact on economic growth, as there will be a circulation of money from travelers coming from major cities to other regions.

Joshua estimated that money circulation in Indonesia will increase by around Rp 243 trillion during Eid al-Fitr 2023. This means that there is an increase compared to last year’s Eid al-Fitr’s recorded money circulation of Rp 221 trillion.