Oct 13, 2017 11:54:55

RHB Investor Gathering – Economic and Political Outlook Towards 2019 Election

Yesterday, we held an Investor Gathering with keynote speaker Mr. Faisal  Basri, discussing Indonesia’s economic and political outlook towards 2019 election.

Mr. Basri sees a solid macroeconomic situation for Indonesia. There is risk  in the fiscal deficit due to limited government revenue, but it is still manageable by lowering capital spending. Slower growth in households consumption is likely to be driven by shifting to saving from spending by consumers. Political condition is conducive with a high electability for President Joko Widodo. Overall, Indonesia’s democracy situation is more stable than its neighbouring countries.

Below are keys takeaways:

  • Solid macroeconomics. Indonesia’s macroeconomic condition is solid which is indicated by low inflation (3.7% in Sep), lower Central Bank 7-day repo rate (4.25% in Sep), stable IDR/USD exchange rate (IDR13,500/USD), and high foreign reserves (USD129.4bn in Sep). 
  • There is risk in fiscal deficit, but it is manageable. From the fiscal side, limited government revenue affects the economy. Ambitious 2017 tax revenue target (+16% vs 2016 realisation) is unlikely to be achieved, thus will likely cause fiscal deficit to be higher than its target (above 2.9%). Mr. Basri suggested slower capital spending, such as rescheduling infrastructure projects and reducing state capital injection. Otherwise, macroeconomic stability may be disturbed. 
  • Slower consumption growth, but not purchasing power. In middle-to-high income households, there is indication of shifting to saving from consumption. Households saving-to-income ratio increased to 20.8% in 2Q17 (from 18.6% in 2Q16).

    For low-income consumers – e.g. farmers, construction workers, and other informal workers – their purchasing power generally have declined for quite some time. Moreover, the delay of social assistance disbursement to this group worsened the situation. Nevertheless, this group has a small contribution of 17% of the national private consumption. 
  • President Joko Widodo’s electability is high. Despite slower growth in  consumer spending – especially in low-end segment – President Joko Widodo’s electability is high, increasing to 41.6% in Apr-17 (from 36.3% in  Apr-16), according to a Kompas survey. In addition, satisfaction rate on Joko Widodo administration is high, stable at around 65%. Overall, Indonesia’s  democracy situation is more stable than its neighbouring countries. (Andrey Wijaya, Rizki Fajar)