IMF Projects Indonesia's Economic Growth at Just 4.7%: Experts Warn of Structural Vulnerabilities
JAKARTA — Universitas Paramadina held a public discussion entitled "IMF Predicts Indonesia's Economic Growth for 2025-2026 at Only 4.7%: What Can Indonesia Do?" via Zoom on Monday (28/4/2025).
In his presentation, Universitas Paramadina Vice Rector Handi Risza Idris revealed that the International Monetary Fund (IMF) and World Bank had recently cut Indonesia's economic growth projection to 4.7%, below the psychological threshold of 5%.
"This is a consequence of inherited structural challenges that were not fully resolved in the previous era, and have now become homework for President Prabowo's administration," said Handi.
Nevertheless, the government through the Ministry of Finance remains optimistic, setting an economic growth target of 5.2% for 2025. However, according to Handi, the macroeconomic assumptions and formulation of the 2025 state budget have yet to show any significant breakthroughs.
"Household consumption remains the primary growth engine at 4.9%. This high dependency actually reflects vulnerability to global shocks," he explained.
Fiscal stimulus through the state budget, which contributes approximately 15% to GDP, was deemed crucial. Amid the heavy burden on the state budget, the government is relying on various priority programmes such as the Danantara Programme and the free nutritious meals programme, with a total budget of approximately Rp750 trillion.
Handi highlighted the importance of readiness and careful planning, particularly for ambitious programmes such as the establishment of 80,000 Koperasi Merah Putih (Red and White Cooperatives) allocated Rp400 trillion. "We must learn from past experience; large projects without robust planning risk failure," he stressed.
Regarding global dynamics, Handi warned that the impact of international trade wars, particularly United States protectionism, had increased global economic uncertainty, slowed global consumption, and delayed corporate investment. Nevertheless, he saw new opportunities arising from tariff policies against products from China, Vietnam, and Bangladesh.
However, amid these opportunities, Handi assessed that Indonesia's economic fundamentals are currently quite fragile. "State debt reaching Rp8,000 trillion, declining competitiveness, de-industrialisation, and weak productivity and human resource quality have led Indonesia to be categorised as a high economic risk country," he said. Moreover, debt financing requirements in 2025 and 2026 each amount to Rp800 trillion.
In the first six months of the new government, according to Handi, no concrete, realistic and rational plans have been evident. He emphasised the importance of thorough evaluation of flagship programmes such as the construction of 3 million homes per year, free nutritious meals for 83 million students, Koperasi Merah Putih, and the Danantara Programme.
Handi stressed that to strengthen the national economic foundation, President Prabowo's administration needs to focus on three key steps: improving policy communication, strengthening government technocracy, and enhancing execution capacity on the ground.
"We need concrete action, not just ambitious programmes. The government must build a solid economic foundation so that Indonesia can escape the high-risk trap and achieve sustainable growth," Handi concluded.
In the same discussion, Head of the Macroeconomics Department at INDEF, Dr M. Rizal Taufiqurrahman, emphasised that the greatest challenge currently is boosting investment interest and attractiveness amid global uncertainty. He also highlighted the significant impact of the Trump Tariff policy on Indonesia's economy.
Rizal revealed that the unstable global situation had caused pessimistic projections for world economic growth. The IMF estimates growth for developing countries at only 3.7%, with global economic growth predicted to fall to 2.8% in 2025.
"This makes the 5.2% growth target in the state budget a formidable challenge, especially as Indonesia's economic growth target by year-end has been set at 8%," said Rizal.
He warned that periods of global economic crisis would occur more rapidly, requiring Indonesia to be more innovative, adaptive, and responsive. Rizal also highlighted the strengthening trend of bilateralism and weakening of multilateralism, which could alter the direction of national economic policy.
In the context of trade relations, Indonesia accounts for 18% of the United States' trade deficit. Reciprocal tariff policies of up to 32% on Indonesian products are expected to significantly impact the manufacturing sector and cause output declines in several commodities.
Additionally, Rizal projected that unemployment in Indonesia would increase in 2025 due to jobless growth and dependence on the informal sector and low-productivity industries. He also forecast a decline in import figures if not promptly addressed with more effective policies.
As a countermeasure, Rizal recommended the government focus on value chain-based industrialisation, particularly building intermediate industries and medium-technology-based manufacturing. Development of research and development in electric vehicle (EV) batteries and semiconductors was also deemed important, accompanied by aggressive fiscal incentives, tax reform, and strengthening of the Online Single Submission (OSS) system.
"Indonesia's market is large, but the gap between policy design and implementation on the ground remains the main obstacle," he said.
Executive Director of the Segara Research Institute, Dr Piter Abdullah, expressed his concern over the declining trend in domestic economic conditions. "The current wave of layoffs is a continuation of the 2024 phenomenon, but the scale is expected to be much larger this year," said Piter.
He added that the March 2025 Job Availability Index report showed degradation, particularly among lower-middle income groups, although the overall index remained in the optimistic zone.
He emphasised that declining purchasing power is a logical consequence of deteriorating labour market conditions. Piter criticised the narrative that public purchasing power remains strong, based merely on increased electric vehicle sales.
"This is a misleading argument. The decline in purchasing power is occurring among the majority of lower-middle income groups, while upper-income wealth has increased since the pandemic," he stressed.
The decline in the real sales index during Ramadan and Eid al-Fitr, as well as the reduced number of holiday travellers, further confirmed weak domestic consumption. According to him, low core inflation, which fell to around 1%, is not an achievement but rather a signal of weak domestic demand.
"If this trend is not promptly addressed, maintaining let alone improving national economic growth will become a major challenge," he said.
Meanwhile, Executive Director of the Centre for Strategic and International Studies (CSIS), Yose Rizal Damuri, shared his views on Indonesia's economic conditions amid the global economic slowdown.
In his presentation, Yose emphasised that the decline in Indonesia's economic growth is not a singular phenomenon but is also experienced by many other countries. "The IMF projects Indonesia's economic growth at only 4.0%. However, it should be underlined that this downward revision also applies to many countries, including Vietnam, which is expected to decline by 1.3%," said Yose Rizal.
Nevertheless, Yose warned that Indonesia, often referred to as the 'Komodo Dragon' for its economic resilience, now faces considerable domestic pressure. "Our domestic conditions are not fine. We face various problems ranging from fiscal, monetary, external balance, real sector, business climate, employment to public purchasing power," he explained.
Furthermore, he revealed that unpromising economic policy directions are also amplifying these risks. Yose also highlighted the weakening of the US dollar since January 2025 against various world currencies.
"This is a signal that needs to be watched closely as it could impact our economic stability, particularly in the external sector," he stressed.
In his presentation, Yose emphasised that the high-cost economy in Indonesia remains a major obstacle. One of the primary causes is the high level of corruption, which is not matched by legal certainty.
"Uncertainty is exacerbated by an extraordinarily large and frequently changing pile of regulations. At the ministerial level alone, there are nearly 19,000 regulations recorded, not to mention at the regional level," he said.
Yose then compared Indonesia's approach to economic development with China's. "China from the outset opened up and promoted productivity. Conversely, we often feel we are already big and instead close ourselves off, as in the TKDN (Local Content Requirements) policy, which has not contributed much to the industrial sector," he said.
As an example, Yose mentioned LG's withdrawal from a battery investment project in Indonesia worth nearly US$10 billion. "The reason for their exit was incompatibility with Indonesia's demand that the battery supply chain remain dominated by the domestic mining sector," he said.
Closing his presentation, Yose Rizal Damuri emphasised the importance of a paradigm shift in designing economic policy. "We must change our perspective from policies that are too inward-looking and tend to be burdensome, so as not to further worsen labour market conditions and weaken the national economy," Yose concluded.
In his presentation, Universitas Paramadina Vice Rector Handi Risza Idris revealed that the International Monetary Fund (IMF) and World Bank had recently cut Indonesia's economic growth projection to 4.7%, below the psychological threshold of 5%.
"This is a consequence of inherited structural challenges that were not fully resolved in the previous era, and have now become homework for President Prabowo's administration," said Handi.
Nevertheless, the government through the Ministry of Finance remains optimistic, setting an economic growth target of 5.2% for 2025. However, according to Handi, the macroeconomic assumptions and formulation of the 2025 state budget have yet to show any significant breakthroughs.
"Household consumption remains the primary growth engine at 4.9%. This high dependency actually reflects vulnerability to global shocks," he explained.
Fiscal stimulus through the state budget, which contributes approximately 15% to GDP, was deemed crucial. Amid the heavy burden on the state budget, the government is relying on various priority programmes such as the Danantara Programme and the free nutritious meals programme, with a total budget of approximately Rp750 trillion.
Handi highlighted the importance of readiness and careful planning, particularly for ambitious programmes such as the establishment of 80,000 Koperasi Merah Putih (Red and White Cooperatives) allocated Rp400 trillion. "We must learn from past experience; large projects without robust planning risk failure," he stressed.
Regarding global dynamics, Handi warned that the impact of international trade wars, particularly United States protectionism, had increased global economic uncertainty, slowed global consumption, and delayed corporate investment. Nevertheless, he saw new opportunities arising from tariff policies against products from China, Vietnam, and Bangladesh.
However, amid these opportunities, Handi assessed that Indonesia's economic fundamentals are currently quite fragile. "State debt reaching Rp8,000 trillion, declining competitiveness, de-industrialisation, and weak productivity and human resource quality have led Indonesia to be categorised as a high economic risk country," he said. Moreover, debt financing requirements in 2025 and 2026 each amount to Rp800 trillion.
In the first six months of the new government, according to Handi, no concrete, realistic and rational plans have been evident. He emphasised the importance of thorough evaluation of flagship programmes such as the construction of 3 million homes per year, free nutritious meals for 83 million students, Koperasi Merah Putih, and the Danantara Programme.
Handi stressed that to strengthen the national economic foundation, President Prabowo's administration needs to focus on three key steps: improving policy communication, strengthening government technocracy, and enhancing execution capacity on the ground.
"We need concrete action, not just ambitious programmes. The government must build a solid economic foundation so that Indonesia can escape the high-risk trap and achieve sustainable growth," Handi concluded.
In the same discussion, Head of the Macroeconomics Department at INDEF, Dr M. Rizal Taufiqurrahman, emphasised that the greatest challenge currently is boosting investment interest and attractiveness amid global uncertainty. He also highlighted the significant impact of the Trump Tariff policy on Indonesia's economy.
Rizal revealed that the unstable global situation had caused pessimistic projections for world economic growth. The IMF estimates growth for developing countries at only 3.7%, with global economic growth predicted to fall to 2.8% in 2025.
"This makes the 5.2% growth target in the state budget a formidable challenge, especially as Indonesia's economic growth target by year-end has been set at 8%," said Rizal.
He warned that periods of global economic crisis would occur more rapidly, requiring Indonesia to be more innovative, adaptive, and responsive. Rizal also highlighted the strengthening trend of bilateralism and weakening of multilateralism, which could alter the direction of national economic policy.
In the context of trade relations, Indonesia accounts for 18% of the United States' trade deficit. Reciprocal tariff policies of up to 32% on Indonesian products are expected to significantly impact the manufacturing sector and cause output declines in several commodities.
Additionally, Rizal projected that unemployment in Indonesia would increase in 2025 due to jobless growth and dependence on the informal sector and low-productivity industries. He also forecast a decline in import figures if not promptly addressed with more effective policies.
As a countermeasure, Rizal recommended the government focus on value chain-based industrialisation, particularly building intermediate industries and medium-technology-based manufacturing. Development of research and development in electric vehicle (EV) batteries and semiconductors was also deemed important, accompanied by aggressive fiscal incentives, tax reform, and strengthening of the Online Single Submission (OSS) system.
"Indonesia's market is large, but the gap between policy design and implementation on the ground remains the main obstacle," he said.
Executive Director of the Segara Research Institute, Dr Piter Abdullah, expressed his concern over the declining trend in domestic economic conditions. "The current wave of layoffs is a continuation of the 2024 phenomenon, but the scale is expected to be much larger this year," said Piter.
He added that the March 2025 Job Availability Index report showed degradation, particularly among lower-middle income groups, although the overall index remained in the optimistic zone.
He emphasised that declining purchasing power is a logical consequence of deteriorating labour market conditions. Piter criticised the narrative that public purchasing power remains strong, based merely on increased electric vehicle sales.
"This is a misleading argument. The decline in purchasing power is occurring among the majority of lower-middle income groups, while upper-income wealth has increased since the pandemic," he stressed.
The decline in the real sales index during Ramadan and Eid al-Fitr, as well as the reduced number of holiday travellers, further confirmed weak domestic consumption. According to him, low core inflation, which fell to around 1%, is not an achievement but rather a signal of weak domestic demand.
"If this trend is not promptly addressed, maintaining let alone improving national economic growth will become a major challenge," he said.
Meanwhile, Executive Director of the Centre for Strategic and International Studies (CSIS), Yose Rizal Damuri, shared his views on Indonesia's economic conditions amid the global economic slowdown.
In his presentation, Yose emphasised that the decline in Indonesia's economic growth is not a singular phenomenon but is also experienced by many other countries. "The IMF projects Indonesia's economic growth at only 4.0%. However, it should be underlined that this downward revision also applies to many countries, including Vietnam, which is expected to decline by 1.3%," said Yose Rizal.
Nevertheless, Yose warned that Indonesia, often referred to as the 'Komodo Dragon' for its economic resilience, now faces considerable domestic pressure. "Our domestic conditions are not fine. We face various problems ranging from fiscal, monetary, external balance, real sector, business climate, employment to public purchasing power," he explained.
Furthermore, he revealed that unpromising economic policy directions are also amplifying these risks. Yose also highlighted the weakening of the US dollar since January 2025 against various world currencies.
"This is a signal that needs to be watched closely as it could impact our economic stability, particularly in the external sector," he stressed.
In his presentation, Yose emphasised that the high-cost economy in Indonesia remains a major obstacle. One of the primary causes is the high level of corruption, which is not matched by legal certainty.
"Uncertainty is exacerbated by an extraordinarily large and frequently changing pile of regulations. At the ministerial level alone, there are nearly 19,000 regulations recorded, not to mention at the regional level," he said.
Yose then compared Indonesia's approach to economic development with China's. "China from the outset opened up and promoted productivity. Conversely, we often feel we are already big and instead close ourselves off, as in the TKDN (Local Content Requirements) policy, which has not contributed much to the industrial sector," he said.
As an example, Yose mentioned LG's withdrawal from a battery investment project in Indonesia worth nearly US$10 billion. "The reason for their exit was incompatibility with Indonesia's demand that the battery supply chain remain dominated by the domestic mining sector," he said.
Closing his presentation, Yose Rizal Damuri emphasised the importance of a paradigm shift in designing economic policy. "We must change our perspective from policies that are too inward-looking and tend to be burdensome, so as not to further worsen labour market conditions and weaken the national economy," Yose concluded.