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Indonesia’s FDI to hit 1.4% GDP in 2025: World Bank

Date 30/06/2023 - 12:04:00 | 739 views
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Indonesia's foreign direct investment (FDI) could go up to 1.4 % of its gross domestic product (GDP) in 2025, according to a recent report by the World Bank (WB).

The WB attributed this uptick to the job creation law and the government's industrial downstreaming strategy of processing raw minerals at home for greater added value.

It forecast that the country’s FDI is projected to gradually pick up as the Omnibus Law on Job Creation and the Indonesian government's agenda to develop the downstream mining and mineral industries are implemented, reaching 1.4 % of GDP in 2025.

Indonesia's net FDI is projected to grow to 1.3% of the country's GDP this year from 1.1% in 2022. The bank has set the same 1.3% forecast for 2024.

According to bank, based on multinational lender, an open market is a recipe for Indonesia to reach high-income status by its centenary in 2045.

The bank stated Indonesia has had "historically restricted market competition" through regulation, thus preventing productive firms and industries from growing. The job creation omnibus law is expected to remove some of these constraints, among others, by opening up previously restricted sectors for investors.

Satu Kahkonen, the bank country director for Indonesia and Timor Leste, emphasised that Indonesia needs to enhance competition to spur the country's productivity growth. The job creation omnibus law liberalised private investments in the Indonesian economy.

Kahkonen said Indonesia had a very large number of sectors that were closed or restricted for private investment. The law package released those restrictions in one go. From now on, Indonesia needs to identify the specific constraints within policy areas or sectors that prohibit market contestability.

He cited that the country needs to remove the remaining restrictions to competition that are embedded in business regulations, procurement rules, international trade policies, labor market regulations, and financial sector rules.

The WB called Indonesia's financial sector omnibus law "a major reform step". This package of regulations is set to improve access to finance for micro, small, and medium enterprises (MSMEs), among others, by allowing state-owned banks to write off MSMEs' non-performing loans./.


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