Indonesia's Competitiveness Ranking Drops Sharply Amid Structural Weaknesses

24 June 2026 (closed)

Jakarta Composite Index (5,883.88) -217.45 -3.56%

Regional Peers Are Outpacing Indonesia in Competitiveness

Indonesia is currently on the ropes due to a series of external and domestic developments that impact the economy negatively. An additional negative factor arrived in the form of Indonesia’s decline in the IMD World Competitiveness Ranking. In the 2026 edition, Southeast Asia’s largest economy fell to 48th (down from 40th in the preceding edition).

A country’s competitiveness is crucial as it influences the long-term economic survival and the standard of living its citizens enjoy. While global investors do enjoy low wages, they specifically look for stability, ease of doing business, clear tax regulations, and reliable supply chains. Without the availability of a sufficient degree of these matters, high-quality foreign direct investment (FDI) will avoid a country, and thus the country misses out on factories, transfers of high-quality technology, and stable job creation.

The latest IMD data reveals a worrying trend for Indonesia. For two consecutive years, the country has slid down the global ladder, indicating a clear loss of competitive edge on the world stage. While Indonesia achieved a historic peak of 27th place in 2024, it has since tumbled to 48th in 2026 out of the 70 economies monitored by the IMD World Competitiveness Center.

Table 1 - Indonesia’s Rank in the IMD World Competitiveness Ranking (70 Economies):

Source: IMD World Competitiveness Ranking

Perhaps even more alarming is Indonesia’s performance against its immediate Asia-Pacific neighbors. In the IMD’s regional peer group ranking of 15 economies, Indonesia dropped from 11th to 14th place. This slide means Indonesia now sits near the bottom of the regional pack for competitiveness—a dangerous signal considering Jakarta is actively competing for manufacturing FDI with agile regional peers like Vietnam.

Table 2 - Indonesia’s Rank in the Asia-Pacific Peer Group (15 Economies):

Source: IMD World Competitiveness Ranking

The IMD report highlights five core challenges undermining Indonesia’s competitive position. First is a volatile external environment, where intensifying global economic confrontation threatens national energy security. This is a direct nod to the recent geopolitical turmoil in the Middle East that spiked global oil prices for a three-month period. Because Indonesia remains highly dependent on imported fuel, crude oil, and LPG, these price surges combined with a weakening rupiah present severe fiscal risks.

Second, the report points to “fairly stagnant economic growth.” While some might argue this misreads the situation (given that Indonesia posted a seemingly robust headline GDP growth of 5.61 percent year-on-year in Q1-2026) closer analysis reveals a degree of artificiality. Much of that first-quarter growth was buoyed by heavy state spending on the new Free Nutritious Meal program, which artificially accelerated food demand and kitchen infrastructure construction.

This state-driven push aligns closely with the IMD’s third identified challenge: the need for a major realignment of government budget allocations. The final two hurdles identified by the report are long-standing structural bottlenecks: inadequate infrastructure coupled with gaps in human resource competence (fourth), and the limited availability of domestic financing sources (fifth).

A look at the four main assessment pillars confirms that Indonesia’s erosion is structural. The country’s performance weakened across three core categories: government efficiency, business efficiency, and infrastructure. The sole exception was the economic performance pillar, where Indonesia managed to hold its ground. Ultimately, the 2026 rankings show that global markets are punishing Indonesia for its lagging corporate efficiency and persistent infrastructure deficits.

Table 3 - Rank of Indonesia per Main Category:

Source: IMD World Competitiveness Ranking

Table 4 - Competitiveness Landscape of Indonesia:

Source: IMD World Competitiveness Ranking

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