Economic Update Indonesia; World Bank Upgrades Indonesia to Upper-Middle Income Country
Good news at the start of July 2020. The World Bank upgraded Indonesia’s economic status to an ‘upper-middle income country’ (from ‘lower-middle income country’) per 1 July 2020. The key consideration for the World Bank was that Indonesia’s gross national income (GNI) per capita increased from USD $3,840 in 2018 to USD $4,050 in 2019. This means that an upgrade was needed (see the table below).
World Bank Classifications:
|
Category |
GNI per Capita |
|
Low Income Country |
Below USD $1,035 |
|
Lower-Middle Income Country |
USD $1,035 – USD $4,045 |
|
Upper-Middle Income Country |
USD $4,046 – USD $12,535 |
|
High Income Country |
Above USD $12,535 |
Indonesia’s Finance Ministry responded positively to the news via a press release. It said the World Bank’s decision reflects the strengthening economic fundamentals of the nation, and certainly helps to improve investors’ perceptions of Indonesia. This may therefore trigger an increase in direct investment realization in the foreseeable future, and prompt an improvement in the country’s current account balance, while also making the Indonesian economy more competitive.
It its report titled ‘Aspiring Indonesia-Expanding the Middle Class’, the World Bank mentions that Indonesia has made big progress since the early 2000s in terms of social and economic development. Poverty has fallen rapidly (to below 10 percent of the population), while the middle class has expanded quickly (with 20 percent of the Indonesian population now considered as being middle class).
But COVID-19 May Undo What Has Been Achieved
However, the coronavirus (COVID-19) crisis has seriously interrupted the country’s social and economic progress in 2020. In fact, Indonesia could even fall back into the lower-middle income country category before the end of 2020 as a recession seems unavoidable. After the 2.97 percent year-on-year (y/y) economic growth pace in Q1-2020, we assume Indonesia to experience contracting growth in the remaining three quarters of the year. In fact, the first half of 2021is also likely to become a challenging period. A COVID-19 vaccine is probably only ready for use in Indonesia in the middle of Q1-2021. However, before the majority of Indonesians are actually vaccinated we may have already entered the second half of 2021.
Read the full article in the July 2020 edition of our monthly report. Order the report by sending an email to [email protected] or message to +62(0)8.788.410.6944 (incl. WhatsApp).
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