To Avoid Middle Income Trap, the Indonesian Economy Must Grow by 6 Percent


In order not to be hit by the middle-income trap, Indonesia needs to encourage the national economy to reach 6 percent. Based on the government’s projections, the 6 percent economic growth rate can only be achieved in 2023.

Deputy Minister of Finance Suahasil Nazara explained that the Covid-19 pandemic has suppressed the global economy since 2020. After the improvement in pandemic conditions, the conflict between Russia and Ukraine caused economic recovery to falter and has not grown optimally.

The government projects economic growth this year in the range of 5.1 percent-5.2 percent. The projection did not change even though several institutions, such as the World Bank and IMF, revised their projections for global economic growth due to high commodity prices and rising inflation.

According to Suahasil, Indonesia needs to pursue higher economic growth in the future to be free from the middle-income trap.

For information, the middle-class income trap means that a country is unable to maintain a stable level of economic growth to move up to a new income level, namely a high-income country.

“We estimate that ideally [economic growth] is above 6 percent, this is our way to get out of the middle-income trap,” said Suahasil at the 2022 central development coordination meeting, Thursday (21/4/2022).

Based on the IMF’s World Economic Outlook, Indonesia’s economic growth in 2022 is projected to be 5.4 percent, and in 2023 to 6 percent. Meanwhile, the World Bank estimates that Indonesia’s economic growth in 2022 will be at 5.1 percent, and in 2023 it will be 5.3 percent.

The government projects that under current conditions, growth in 2022 and beyond will be at 5.1 percent, 5.3 percent, 5.4 percent, and 5.5 percent.

The projection will increase if there is an optimal economic reform, namely in 2023 and in the following years to 5.9 percent, 6.3 percent, and 6.5 percent.

Suahasil assessed that the current economic recovery will boost the Indonesian economy from last year’s condition. However, the recovery must proceed in a healthy manner, for example from a fiscal perspective.

He explained that the state finances or the state revenue and expenditure budget (APBN) had functioned as a shock absorber for risks due to the Covid-19 pandemic. In order to return to health, the APBN must carry out fiscal consolidation, and this must occur in tandem with economic recovery.

“In conditions like this, economic growth will encourage Indonesia, but from a fiscal perspective, we must remain flexible and cautious. We must continue to position the fiscal as a shock absorber,” said Suahasil.