Jakarta (VNA) - The World Bank (WB) has warned that the Indonesian economymight contract 2 percent this year if mobility restrictions are furtherimplemented to contain the spread of COVID-19, local media reported.
“Under somewhat harsher assumptions on the global economy of a deepercontraction, and if there is a need for mobility restrictions to be reinstatedgoing forward, we do think that the economy could actually contract by 2percent in 2020,” The Jakarta Post newspaper quoted World Bank Indonesia leadeconomist Frederico Gil Sander as saying during the virtual launch of WorldBank’s Indonesia Economic Prospect report on July 16.
The coronavirus outbreak in Indonesia has not shown any signs of abating asmore than 1,000 new cases have been recorded daily since June. Infections stoodat 81,600 as of July 16 afternoon with 3,800 deaths, according to official data.
Despite the rising number of cases, the government and regional administrationsrelaxed social restrictions amid concerns of a slumping economy.
The government projects the country’s economy to grow by 1 percent this yearunder the baseline scenario or contract by 4 percent under the worst casescenario as the pandemic batters business activity and hits demand. The economygrew 2.97 percent in the first quarter, the lowest in 19 years.
The WB’s report, titled The Long Road to Recovery, published thismonth, states that Indonesia’s GDP is expected to be unchanged from 2019. Lastyear, the country’s GDP grew 5 percent.
World Bank Indonesia Country Director Satu Kahkonen explained during thewebinar that the zero percent growth forecast was predicated on three things,namely the global GDP to contract by 5.2 percent this year, the economy to befully open in August and no second wave infections.
The report suggested that a 2 percent contraction would take place if theglobal economy slipped into a deeper recession, wherein the global GDP shrankby 7.8 percent, impacting investment and exports.
Sanders said that under this scenario where the economy would actuallycontract, poverty would increase quite significantly, especially if there is noadditional social assistance.
The WB estimated that without the government’s social assistance, 5.5 millionto 8 million Indonesians could fall into poverty this year as a result of anaggregate decline in household income of 5 percent to 7 percent due to lowerearnings and unemployment.
Around 1.63 million people fell into poverty in March, increasing the number ofpeople living below the poverty line to 26.42 million people, StatisticsIndonesia (BPS) data show.
According to Sanders, aside from ensuring robust health systempreparedness to handle the pandemic curve, the government needs to assist firmsto stay afloat and push for reforms to increase financial sector resilience.
Most importantly, he said, the government should invest more on human andphysical capital as the post-COVID-19 economy was likely to require differentskills from workers. The country also needed to flatten its debt curve when itstarted to recover.
According to the Finance Ministry, Indonesia’s borrowing needs of around 1.53quadrillion rupiah (104.53 billion USD) this year to fund the budget deficitwill increase the country’s debt-to-GDP ratio to 37.64-38.5 percent by year-endfrom around 30 percent in 2019.
The government has allocated 695.2 trillion rupiah to help strengthen thehealthcare system, provide social aid and support economic recovery./.
“Under somewhat harsher assumptions on the global economy of a deepercontraction, and if there is a need for mobility restrictions to be reinstatedgoing forward, we do think that the economy could actually contract by 2percent in 2020,” The Jakarta Post newspaper quoted World Bank Indonesia leadeconomist Frederico Gil Sander as saying during the virtual launch of WorldBank’s Indonesia Economic Prospect report on July 16.
The coronavirus outbreak in Indonesia has not shown any signs of abating asmore than 1,000 new cases have been recorded daily since June. Infections stoodat 81,600 as of July 16 afternoon with 3,800 deaths, according to official data.
Despite the rising number of cases, the government and regional administrationsrelaxed social restrictions amid concerns of a slumping economy.
The government projects the country’s economy to grow by 1 percent this yearunder the baseline scenario or contract by 4 percent under the worst casescenario as the pandemic batters business activity and hits demand. The economygrew 2.97 percent in the first quarter, the lowest in 19 years.
The WB’s report, titled The Long Road to Recovery, published thismonth, states that Indonesia’s GDP is expected to be unchanged from 2019. Lastyear, the country’s GDP grew 5 percent.
World Bank Indonesia Country Director Satu Kahkonen explained during thewebinar that the zero percent growth forecast was predicated on three things,namely the global GDP to contract by 5.2 percent this year, the economy to befully open in August and no second wave infections.
The report suggested that a 2 percent contraction would take place if theglobal economy slipped into a deeper recession, wherein the global GDP shrankby 7.8 percent, impacting investment and exports.
Sanders said that under this scenario where the economy would actuallycontract, poverty would increase quite significantly, especially if there is noadditional social assistance.
The WB estimated that without the government’s social assistance, 5.5 millionto 8 million Indonesians could fall into poverty this year as a result of anaggregate decline in household income of 5 percent to 7 percent due to lowerearnings and unemployment.
Around 1.63 million people fell into poverty in March, increasing the number ofpeople living below the poverty line to 26.42 million people, StatisticsIndonesia (BPS) data show.
According to Sanders, aside from ensuring robust health systempreparedness to handle the pandemic curve, the government needs to assist firmsto stay afloat and push for reforms to increase financial sector resilience.
Most importantly, he said, the government should invest more on human andphysical capital as the post-COVID-19 economy was likely to require differentskills from workers. The country also needed to flatten its debt curve when itstarted to recover.
According to the Finance Ministry, Indonesia’s borrowing needs of around 1.53quadrillion rupiah (104.53 billion USD) this year to fund the budget deficitwill increase the country’s debt-to-GDP ratio to 37.64-38.5 percent by year-endfrom around 30 percent in 2019.
The government has allocated 695.2 trillion rupiah to help strengthen thehealthcare system, provide social aid and support economic recovery./.
VNA
