IMF Projects Indonesia's Economic Growth at Just 4.7% for 2025-2026, Far Below Government's 8% Target
JAKARTA – Indonesia's economic growth for 2025-2026 is projected at only around 4.7%, well short of the 8% growth target pledged by the Prabowo administration. This was the focus of a public discussion held by Universitas Paramadina Jakarta, entitled "IMF Predicts Indonesia's Economic Growth for 2025-2026 at Only 4.7%: What Can Indonesia Do?", conducted online 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 the World Bank had recently cut their projections for Indonesia's economic growth to 4.7%, below the psychological threshold of 5%.
"This is a consequence of legacy structural challenges that were not fully resolved in the previous era, and have now become homework for the Prabowo administration," said Handi in a statement on Wednesday (30/4/2025).
Nevertheless, the government through the Ministry of Finance remains optimistic, setting a 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 heavy dependence 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 including the Danantara Programme and the free nutritious meals programme, with a combined 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) with an allocation of 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 US protectionism, has increased global economic uncertainty, slowed global consumption, and delayed corporate investment. Nevertheless, he saw new opportunities arising from tariff policies on products from China, Vietnam, and Bangladesh.
However, amid these opportunities, Handi assessed that Indonesia's economic fundamentals are currently quite fragile. "National debt reaching Rp8,000 trillion, declining competitiveness, de-industrialisation, and weak productivity and human resource quality have placed Indonesia in the high economic risk category. Moreover, debt financing requirements for 2025 and 2026 each reach Rp800 trillion."
In the first six months of the new administration, according to Handi, no concrete, realistic and rational plans have been evident. He emphasised the need for in-depth evaluation of flagship programmes such as the construction of 3 million houses 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, the Prabowo 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.
**Challenges**
In the same discussion, Head of the Macroeconomics Department at INDEF, Dr M. Rizal Taufiqurrahman, emphasised that the greatest challenge is boosting investment interest and attractiveness amid global uncertainty. He also highlighted the significant impact of Trump tariff policies on Indonesia's economy.
Rizal revealed that the unstable global situation has caused pessimistic projections for world economic growth. The IMF estimates developing country growth at just 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 when Indonesia's growth target by year-end is set at 8%," said Rizal.
He warned that periods of global economic crisis are arriving more rapidly, requiring Indonesia to be more innovative, adaptive, and responsive. Rizal also highlighted the strengthening trend of bilateralism and the weakening of multilateralism, which could alter the direction of national economic policy.
In terms of trade relations, Indonesia accounts for 18% of the United States' trade deficit. Reciprocal tariffs of up to 32% on Indonesian products are expected to significantly impact the manufacturing sector and cause output declines in several commodities.
**Rising Unemployment**
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 imports 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 manufacturing. Development of research and development (R&D) 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 on-the-ground implementation remains the primary obstacle," he said.
Executive Director of the Segara Research Institute, Dr Piter Abdullah, expressed concern about 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 far greater this year," said Piter.
He added that the March 2025 Job Availability Index showed degradation, particularly among lower-middle income groups, although the overall index remained in the optimistic zone. He stressed 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, whilst wealth among upper groups has increased since the pandemic," he asserted.
The decline in the real sales index during Ramadan and Eid al-Fitr, along with the reduction in the number of homebound travellers, further underscored 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 stressed that Indonesia's growth decline is not a singular phenomenon but is being experienced by many other countries.
"The IMF projects Indonesia's economic growth at just 4.0%. However, it should be underlined that this downward revision is also occurring in many countries, including Vietnam, which is estimated 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 issues," he explained.
Furthermore, he revealed that unpromising economic policy directions are compounding these risks. Yose also highlighted the weakening of the US dollar since January 2025 against various world currencies. "This is a signal that must be watched as it could impact our economic stability, particularly in the external sector," he stressed.
In his presentation, Yose emphasised that Indonesia's high-cost economy remains a major impediment. One of the primary causes is the high level of corruption unmatched by legal certainty. "Uncertainty is worsened by an extraordinary accumulation of regulations that frequently change. At the ministerial level alone, there are nearly 19,000 regulations, not counting regional ones," he said.
Closing his presentation, Yose Rizal Damuri stressed 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 the World Bank had recently cut their projections for Indonesia's economic growth to 4.7%, below the psychological threshold of 5%.
"This is a consequence of legacy structural challenges that were not fully resolved in the previous era, and have now become homework for the Prabowo administration," said Handi in a statement on Wednesday (30/4/2025).
Nevertheless, the government through the Ministry of Finance remains optimistic, setting a 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 heavy dependence 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 including the Danantara Programme and the free nutritious meals programme, with a combined 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) with an allocation of 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 US protectionism, has increased global economic uncertainty, slowed global consumption, and delayed corporate investment. Nevertheless, he saw new opportunities arising from tariff policies on products from China, Vietnam, and Bangladesh.
However, amid these opportunities, Handi assessed that Indonesia's economic fundamentals are currently quite fragile. "National debt reaching Rp8,000 trillion, declining competitiveness, de-industrialisation, and weak productivity and human resource quality have placed Indonesia in the high economic risk category. Moreover, debt financing requirements for 2025 and 2026 each reach Rp800 trillion."
In the first six months of the new administration, according to Handi, no concrete, realistic and rational plans have been evident. He emphasised the need for in-depth evaluation of flagship programmes such as the construction of 3 million houses 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, the Prabowo 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.
**Challenges**
In the same discussion, Head of the Macroeconomics Department at INDEF, Dr M. Rizal Taufiqurrahman, emphasised that the greatest challenge is boosting investment interest and attractiveness amid global uncertainty. He also highlighted the significant impact of Trump tariff policies on Indonesia's economy.
Rizal revealed that the unstable global situation has caused pessimistic projections for world economic growth. The IMF estimates developing country growth at just 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 when Indonesia's growth target by year-end is set at 8%," said Rizal.
He warned that periods of global economic crisis are arriving more rapidly, requiring Indonesia to be more innovative, adaptive, and responsive. Rizal also highlighted the strengthening trend of bilateralism and the weakening of multilateralism, which could alter the direction of national economic policy.
In terms of trade relations, Indonesia accounts for 18% of the United States' trade deficit. Reciprocal tariffs of up to 32% on Indonesian products are expected to significantly impact the manufacturing sector and cause output declines in several commodities.
**Rising Unemployment**
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 imports 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 manufacturing. Development of research and development (R&D) 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 on-the-ground implementation remains the primary obstacle," he said.
Executive Director of the Segara Research Institute, Dr Piter Abdullah, expressed concern about 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 far greater this year," said Piter.
He added that the March 2025 Job Availability Index showed degradation, particularly among lower-middle income groups, although the overall index remained in the optimistic zone. He stressed 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, whilst wealth among upper groups has increased since the pandemic," he asserted.
The decline in the real sales index during Ramadan and Eid al-Fitr, along with the reduction in the number of homebound travellers, further underscored 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 stressed that Indonesia's growth decline is not a singular phenomenon but is being experienced by many other countries.
"The IMF projects Indonesia's economic growth at just 4.0%. However, it should be underlined that this downward revision is also occurring in many countries, including Vietnam, which is estimated 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 issues," he explained.
Furthermore, he revealed that unpromising economic policy directions are compounding these risks. Yose also highlighted the weakening of the US dollar since January 2025 against various world currencies. "This is a signal that must be watched as it could impact our economic stability, particularly in the external sector," he stressed.
In his presentation, Yose emphasised that Indonesia's high-cost economy remains a major impediment. One of the primary causes is the high level of corruption unmatched by legal certainty. "Uncertainty is worsened by an extraordinary accumulation of regulations that frequently change. At the ministerial level alone, there are nearly 19,000 regulations, not counting regional ones," he said.
Closing his presentation, Yose Rizal Damuri stressed 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.