Indonesia has regained its upper-middle-income status, marking an encouraging sign of economic revival in the wake of the COVID-19 pandemic. According to the World Bank database, the nation’s gross national income (GNI) per capita surged to $4,580 last year, a notable 9.8% increase from the preceding year. The World Bank confers upper-middle-income status on countries with a GNI per capita exceeding $4,466.
After achieving this status based on its 2019 GNI per capita, Indonesia was demoted to lower-middle-income status due to the pandemic’s impact on the economy. Febrio Kacaribu, head of the Finance Ministry’s Fiscal Policy Agency (BKF), lauds the government’s commitment to maintaining quality economic recovery.
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This rebound is attributed to the government’s successful efforts to reduce poverty to single-digit levels in 2022 after exceeding 10% in the previous year. Another encouraging factor is the declining unemployment rate as the economy is nearing pre-pandemic employment levels.
During the pandemic, Indonesia experienced its first annual economic contraction since 1998, with GDP declining by 2.07% in 2020 due to weakened consumer spending and private investment. However, the country witnessed a growth of 5.31% last year, bolstered by the recovery of household spending and investments, as well as boosted exports due to high commodity prices.
Indonesia’s return to upper-middle-income status also stemmed from its push to elevate the value of mineral exports and effective COVID-19 management that expedited national economic recovery. However, M. Rizal Taufiqurahman, head of the macroeconomics and finance center at the Institute for Development of Economics and Finance (Indef), expressed that this uplifted status doesn’t necessarily translate to overall welfare improvement.
Rizal asserted that the national income metric, driven primarily by international trade, predominantly included sectors like mining and palm oil, which benefitted from surging commodity prices. Meanwhile, indicators reflecting the domestic economy, such as the tax-to-GDP ratio, witnessed a decline, despite a significant pick-up in 2022 due to high commodity prices.
Novia Xu, a researcher at the Centre for Strategic and International Studies (CSIS), pointed out that although Indonesia has reclaimed its upper-middle-income status, the country still faces a long journey to escape the middle-income trap. This term refers to economies stagnating in the middle-income group, indicating a potential decline in competitiveness, slow growth, stagnant or falling wages, and an expanding informal economy.
According to the National Development Agency (Bappenas), to transition into the high-income grouping, which requires a GNI per capita exceeding $13,845 by World Bank standards, Indonesia’s economy needs to grow annually by between 6% and 7%. However, over the past decade, the nation’s growth has been approximately 5%.
Novia underlined the current heavy reliance of Indonesia on natural resources and a lack of progress towards sustainable practices. Furthermore, the government’s infrastructure push, intended to stimulate economic growth, has been found lacking in terms of anti-disaster standards, potentially leading to high costs in the event of natural disasters.
News based on Asia News.
