Household spending, traditionally a strong contributor to Indonesia's GDP, and election-related spending helped to expand Southeast Asia's largest economy by 5.11 percent in the first quarter of 2024. It is expected to expand five percent overall this year, followed by 5.1 percent in 2025 and 2026, according to the report. The latest projection was an increase from the bank's previous estimates of 4.9 percent this year and next, followed by five percent in 2026.
"The economy is expected to benefit from a pick-up in public consumption and investment but will face headwinds, notably from worsening terms of trade," the report said.
It noted several risks to the economy, including high interest rates and geopolitical shocks. The risks could further weigh on exports already impacted by lower prices.
"The outlook is stable, but risks are tilted to the downside... Our baseline (projection) assumes continuity in policy, especially those linked to boosting investment," World Bank senior economist Wael Mansour told a news conference.
Mansour said the latest projection assumes a large contribution from public consumption, with government spending expected to increase. At the same time, foreign direct investment as a share of GDP is projected to return to pre-pandemic levels. He added that Indonesia's "credible" fiscal rule had helped attract investments and lower Indonesia's risk premiums.
However, AFP reported that Indonesia's president-elect Prabowo Subianto, who will take office in October, is looking to increase the country's debt-to-GDP ratio to 50 percent - from less than 40 percent. The increase is aimed at funding his campaign promises, including free school meals. A member of Prabowo's campaign team has denied the plan.
The upcoming Indonesia's 2025 State Revenue and Expenditure Budget is due by October. It is expected to outline an implementation plan for the new administration's economic goals and signal its fiscal policy stance.
