Qatar National Bank (QNB) expects the economic outlook for Indonesia to remain positive, supported by a government that supports continuity and has a pro-business agenda, favorable demographics, a sound fiscal framework, and a strong pipeline of infrastructure projects, in addition to capital spending projects.
The Qatar National Bank (QNB) report detailed three main factors that support these positive expectations, despite headwinds, such as increasing US protectionism and the volatility of commodity prices. The first of these is due to the demographic structure, which is considered a long-term tailwind for Indonesia, as the population continues to rise. Increasing rapidly. The most important thing in this regard is that the demographic structure supports the acceleration of economic expansion in the coming decades.
The report said that in light of the relatively young age of the population, the number of workers is expected to continue to grow at a faster pace than the number of dependents, which creates a demographic dividend, that is, when the proportion of the population who are considered to be of working age (15 to 64) is greater than the proportion of the population who are not. At working age. This demographic dividend began in 2013 and is set to continue creating positive momentum into the early 2040s.
According to the report, this demographic dividend will enhance real GDP growth by no less than 1 percent annually over the next two decades. During this period, Indonesia will likely add more than 100 million people to the consumer category. This is a huge increase, surpassed only by the numbers recorded in China and India.
When addressing the second element, Qatar National Bank QNB believed that the financial rule applied in Indonesia will continue to provide certainty and will remain a pillar of the country’s macroeconomic stability. Since 1967, Indonesia has applied a fiscal rule that sets a deficit ceiling of 3 percent of GDP, and a public debt ceiling, since 2004, of 60 percent of GDP. In recent decades, the deficit was only allowed to exceed the ceiling by presidential decree during the Covid pandemic in 2020 and 2021, after which it quickly returned to a level below the ceiling.
The report indicated that public debt has recently stabilized at about 40 percent of GDP, which is lower than the level prevailing in other ASEAN economies, until public debt remains stable or below this level, against the backdrop of real GDP growth of 100%. 5 percent and adherence to the 3 percent ceiling set for the deficit as a percentage of GDP. This fiscal discipline ensures that Indonesia maintains strong “investment grade” sovereign credit ratings with all major credit rating agencies, as well as relatively tight sovereign interest rate spreads.
The new government is widely expected to maintain fiscal discipline, which will help keep borrowing costs low and investor confidence, meaning that capital spending on infrastructure can continue at more reasonable costs for both the government and the private sector, boosting investment and growth.
The third element he referred to was Indonesia’s launch of a wide range of infrastructure projects and major capital spending that would support the recovery of investments.
It is also expected that the group of infrastructure projects, worth hundreds of billions of US dollars, will continue as one of the main priorities of the new administration, pointing to the implementation of major infrastructure projects in sectors such as transportation (roads, bridges, railways, airports, ports), logistics, mining and utilities. needed for new factories.
The report said that among the main drivers of additional infrastructure spending is the plan to move the capital from Jakarta to the island of Borneo. The move follows previous steps taken by other regional countries such as Malaysia and Myanmar, and is expected to ease congestion in currently overcrowded Jakarta and support efforts to integrate the archipelago. The project costs are estimated at approximately 33 billion US dollars. Strong investment in infrastructure is expected to support growth.