Indonesia's Economy Expands On Reforms, Spending: IMF

(RTTNews) - Indonesia's economy continues to expand strongly driven by solid economic policies and increased household spending, the International Monetary Fund said late Friday.

The Washington-based lender said the resilient economy can benefit from stronger reforms.

The economy is estimated to grow 5 percent in 2016 compared to 4.8 percent in 2015. This was the highest in large emerging market economies, the IMF said.

Household consumption remains one of the main drivers of growth. Indonesia requires more investment to sustain and even accelerate the pace of growth over the medium term, the lender observed.

The near-term outlook remains favorable. However, the agency cautioned that external risks, like China re-balancing, policy changes from the new United States administration, pose challenges to favorable outlook.

The IMF said Indonesia needs to stand ready to manage short-term risks, while ramping up economic reforms to increase potential growth. At the same time, domestic risks include tax revenue shortfalls or higher domestic interest rates due to tighter global financial conditions.

The lender advised the government to continue improving the composition and efficiency of spending and raise tax revenues through tax policy and administration reforms.

Further, the agency advised the central bank to maintain exchange rate flexibility and stand ready to respond to a possible volatile external environment.

Inflation is expected to rise to around 4.5 percent at the end of 2017 from 3.2 percent at the end of 2016.