ieq march2014 presentation english

8/12/2019 IEQ March2014 Presentation English

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Indonesia Economic Quarterly Launch

Jakarta, March 18, 2014

Jim Brumby

Sector Manager and Lead Economist


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MARCH 2014 IEQ: INVESTMENT IN FLUX

Investmentin

flux

Fixed

investment:subdued,and risks

FDI: solid,but has

plateauedrecently

Portfolioinvestment:

currentlystrong, but

volatile

Risks tofiscal spaceneeded for

publicinvestment

2


3/24

OUTLINE

Recent economic developments and outlook

Investment in flux, amid policy uncertainties, fiscal pressures

Priorities for the longer-term, and selected issues

3


4/24

GDP: WEAK INVESTMENT, STRONG NET EXPORTS

-3

-2

-1

0

1

2

3

4

Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13

Fixed investmentNet exports

Contribution to GDP growth yoy, percent

Source: BPS; World Bank calculations

4


5/24

IMPORT DEMAND HAS SOFTENED

-12

0

12

24

36

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

Intermediate Consumption

Capital Oil & Gas

Total imports

Percent Contribution to yoy growth

Source: BPS; World Bank staff calculations

5


6/24

-15

-10

-5

0

5

10

15

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14

O-S-A Coal Palm oil Rubber and products Oil and gas Others

percent

RAW MINERAL EXPORTS BAN BUMP IN Q4

Ores, Slags and Ashes

Source: BPS; World Bank staff calculations

6


7/24

OVERALL BOP: NARROWER C/A DEFICIT

-16

-12

-8

-4

0

4

8

12

16

Dec-10 Dec-11 Dec-12 Dec-13

Overall balance

Net direct investment

Net other capital

Current account

Net portfolio

Balance of payments, USD billion

Note: Basic balance = Current account balance + net FDI

Source: BI; World Bank staff calculations

7


8/24

SUPPORTING THE RUPIAH OVER Q1 2014

Nominal currency index, 2011 average =100

Note: Selected EM majors is a simple average of BRL, IDN, TRY and ZAR vs. USD; USD is broad NEER index

Source: JP Morgan; World Bank staff calculations

70

80

90

100

110

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13

USD

IDN

Selected EM

majors

8


9/24

GLOBAL ECONOMY: LIKELY TO STRENGTHEN

Major trading partner GDP growth, percent

Source: World Bank staff calculations

3.54.0 4.1

-2

-1

0

1

2

3

4

5

6

7

8

9


10/24

INDONESIA: MIXED HIGH FREQ. DATA; MORE

HEADWINDS

Economic activity indicators - mixedGrowth in 3-month moving avg. yoy,

percent

Source: CEIC; World Bank staff calculations

Credit growth - fallingGrowth yoy, percent

Source: CEIC; World Bank staff calculations

-10

-5

0

5

10

15

20

25

30

-10

0

10

20

30

Jan-12 Jan-13

Percent Percent

Nominal (LHS)

Real (LHS)

Monthly nominal

lending growth (RHS)-30

-20

-10

0

10

20

30

40

50

60

Feb-12 Aug-12 Feb-13 Aug-13 Feb-14

Motorcycles

Cement sales

Motor

vehicles

10


11/24

INDONESIA OUTLOOK: SOME MORE GROWTH

MODERATION TO COME

March IEQPrevious

(Dec.)

2012 2013 2014 2015 2014pReal GDP (% change) 6.2 5.8 5.3 5.6 5.3Consumer priceindex (% change) 4.3 6.9 6.2 5.2 6.7Current account

balance(USD billion) -24.4 -28.5 -24.4 -20.2 -22.8

Current account

balance (% GDP) -2.8 -3.3 -2.9 -2.1 -2.6Budget balance (% of GDP) -1.9 -2.2 -2.6 n.a. -2.1

Source: BI; BPS; Ministry of Finance; World Bank staff projections

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12/24

AMIDST SIGNIFICANT RISKS

Domestic External

Positive

Electionslead to astronger than expected

boost to consumption,

investment

Commodity prices rise Global risk appetite is

stronger than expected,

boosting portfolio inflows

to EMEs inc. Indonesia

Negative

Investment weakens as

downturn extends to

building investment

Consumption growth

disappoints as incomeand credit effects take

their toll

External financing

conditions tighten again

Global commodity prices

fall, e.g. due to slower

than expected growth inChina

12


13/24

OUTLINE

Recent economic developments and outlook

Investment in flux, amid policy uncertainties, fiscal pressures

Priorities for the longer-term, and selected issues

13


14/24

INVESTMENT IN FLUX

0

1

2

3

4

5

6


USDbillion

Source: BI; World Bank staff calculations

-5

0

5

10

15


OtherForeign transportation

Foreign machinery & equip

Building

Total

Foreign direct investment

Inbound FDI, rolling 4-quarter average

Fixed investment

Contributions to real growth yoy, percent

14


15/24

FISCAL SECTOR:

REVENUES SOFT; NEW POLICY PRESSURES

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

-25

-15

-5

5

15

25

35

45

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Deficit (RHS, % of GDP)Revenues (LHS, yoy nominal growth, %)

Expenditures (LHS, yoy nominal growth, %)

Note: 2013 deficit is World Bank staff projection

Source: Ministry of Finance; World Bank staff calculations

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FUEL SUBSIDY REFORM WOULD HELP

-300

-250

-200

-150

-100

-50

0

50

100

2009 2010 2011 2012 2013

2014

Fuel subsidy

expenditure,

GoI

Savings

Expenditures

Scenario 1 (2013 again)

Scenario 2: 50% economic price fill

2014 WB

projection

Achieving a deficit of


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EXAMINING THE MINERAL EXPORT BAN

Unprocessedexport ban

+ Export duty and

tax

Increaseddomestic mineral

processing

Higher value-added mineral

exports

GDP growth

Trade Balance

Fiscal Revenues

Job Creation

Significant processing

investment is stimulated. i.e,that smelters are financially

viable

Processing

adds a lot ofvalue to

mineral

exports

Higher processed exports will offset

lower ore exports Higher value exports will increase

non-tax revenues

Processing will create more and

better jobs in the sector

Rationale

Underlying assumptions

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BUT IS THE MINERAL EXPORT BAN SOUND?

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Copper Nickel Tin Iron Bauxite Other Minerals

Percent of totalUSD million Processed Mineral Exports

Unprocessed Mineral Exports

Share of Mineral in Total Exports

Note: Data for 2013

Source: WITS database; World Bank staff calculations

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TRADE IMPACTS

19

-5.3

-3.3-3.0

-0.9

-6

-5

-4

-3

-2

-1

0

2014 2015 2016 2017

USD billion

Estimated impact on net trade balance

Source: World Bank


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REVENUE IMPACTS

-0.4

-1.1

-1.8

-2.2

-4

-2

0

2014 2015 2016 2017

USD billion

Estimated impact on fiscal revenues (export duties and taxes, royalties and CIT)

Source: World Bank

20


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22/24

AVOIDING THE TRAPTHE CHALLENGEharnessing Indonesias potential to generate shared prosperity,

through fast productivity-driven economic growth withinclusiveness

Structural policies to boost prosperity:

Closing the infrastructure gap

Closing the skills gap

Enhancing the functioning of markets

Complementary areas:

Service delivery for all

Social protection

Natural disaster risk management

Foundational pre-requisites:

Macro-fiscal management and managing shocks

Implementation

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URBAN DISASTER

PREPAREDNESS

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THANK YOU

March 2014 IEQ contents:

Regular update on economicdevelopmentsand the outlook

Examining the mineral exports ban

Urban disaster risks planningA taster of the forthcoming World

Bank report,Avoiding the Trap

On the web:

http://www.worldbank.org/en/news/feature/2014/03/18/

indonesia-economic-quarterly-march-2014

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ieq march2014 presentation english

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