Credit ratings agency Fitch Ratings (Fitch) has forecast that Indonesia’s economic growth will contract by 2 percent in 2020, largely attributable to the impact of the COVID-19 pandemic.

Fitch expects Indonesia’s economy to shrink 2 percent this year due to the impact of the COVID-19 pandemic (Photo: Antara)

According to Fitch, the country’s economy will witness a rebound to 6.6 percent growth in 2021, partly driven by a low-base effect, and expects growth momentum to continue at 5.5 percent in 2022, supported in part by the government’s renewed focus on infrastructure development.

The Indonesia government has responded swiftly to the crisis with a broad range of relief measures to support households and companies, including small- and medium-sized enterprises, it said.

Accordingly, total coronavirus-related government support amounted to 695 trillion Rp (47.93 billion USD), or 4.4 percent of GDP, and included direct cash transfers, provision of basic foods, guarantees and tax incentives.

Fitch believed the Indonesian government is likely to resume adhering to the 3 percent of GDP deficit ceiling by 2023, in line with its stated intention.

The agency rated, higher government spending and lower revenue due to the slowdown should cause the fiscal deficit to rise to around 6.0 percent in 2020 from 2.2 percent in 2019.

Fitch expects the deficit to narrow to 5.0 percent in 2021 and 3.5 percent in 2022, as most of the pandemic-related expenditure should be temporary.

Meanwhile, the general government debt is forecast to rise to 36.7 percent of GDP in 2020 from 30.6 percent of GDP in 2019, and to peak at 39.1 percent of GDP in 2022.

Source: VNA