Overall, increasing tax revenues can best be achieved through broadening tax bases and improving tax administration. The report recommends that the Coordinating Ministry for Economic Affairs implements a government-wide policy to strengthen institutions, optimise co-ordination among ministries and improve regulations, based on international best practice. In particular, measures to further develop the Indonesian market and increase private investment in infrastructure need to be fostered by coherent policies.
In , that growth rate has been bogged down as the coronavirus pandemic impacts tourism, trade, and investment. To compound matters further, measures that Jakarta itself has taken to combat the virus—restricting the movement of people and temporarily shutting down businesses—have also devastated domestic demand. Few Indonesians are buying things, so there is less need to stock the stores with expensive foreign goods. But in the longer term, Indonesia will have to pay a high price: weak growth and rising debt and poverty, unless the country changes course.
In response to these dual challenges, the government recently unveiled a fiscal package valued at 4. Additionally, 3. An additional 1. This package, together with an earlier announced package worth of 0. Falling state revenue and rising expenditures to offset declining growth likely will mean a fiscal shortfall of nearly 7 percent of GDP in The bigger problems are shrunken growth and uncertainty about future income flows.
Indonesia should seize this opportunity to roll out fundamental reforms to reenergize its growth. Global demand is staging a recovery in the second half of , but Indonesia will likely benefit less than other countries in Asia because exports make up too low a share of its GDP. As such, it cannot rely on pulling in money from overseas.
The reality is that Indonesia needs to move beyond resources, which it has focused on for quite some time, and instead move up the value chain by enacting policies to promote more investment in complex and lucrative commodity processing at home in Indonesia rather than just selling its raw materials abroad.
Now is the time for the country to focus on moving up the value chain in manufacturing to leverage its inherent advantages—a huge, young, and energetic workforce that is eager to learn new skills—to raise its capital base and diversify its sources of national income.
Studies have shown that trade linkages to the global value chain GVC raise incomes and reduce poverty. However, Indonesia still faces considerable development challenges. With its economy impacted by the pandemic, Indonesia went from upper-middle income to lower-middle income status as of July Indonesia achieved a notable success in reducing its stunting rate from 37 percent in to under 28 percent in However, more work remains to be done to ensure strong and productive human capital development.
The additional spending is to improve patient treatment and expand food assistance, cash transfers, and wage subsidies. In Indonesia, climate change is likely to impact water availability, health and nutrition, disaster risk management, and urban development — particularly in coastal zones, with implications to poverty and inequality. The partnership between Indonesia and the World Bank has evolved over six decades.
The CPF is supporting the government of Indonesia to promote inclusive and sustainable economic recovery from the COVID pandemic and achieve long-term economic growth. It is built around four engagement areas:. Three cross-cutting themes: digitalization, gender, and climate change will run across the four engagement areas and are mainstreamed across all activities under the CPF.
Some of the important achievements supported through this financing include the rollout of a national free vaccination program for adults, the securing of multiple sources of vaccine supplies in December , and expanding the PCR network from 49 to testing labs between March to September On August 31, , Indonesia crossed a major milestone by administering the millionth COVID vaccine dose and is further accelerating the vaccination program to reach its remote parts.
Promoting human capital is an important priority for Indonesia. This achievement involved a range of ministries and government institutions working together to bring nutrition services to millions of pregnant women and children under two across the country. The PKH provides cash benefits to encourage beneficiary families to use maternal and child-related health and nutrition services and to send their children to school.
In addition, the program also provides family development sessions and learning materials to beneficiary mothers so that they can gain better understanding of health and nutrition, good parenting practices, child protection, and financial management.
A recent study shows that the cumulative impacts of PKH can reduce stunting by around 9 percentage points. On education outcomes, the PKH has helped to solve the last-mile enrollment problem for children aged 7 to 15, and eliminated more than half of nonenrolments.
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