With plans including the construction 25 airports and new power plants, Indonesia hopes to boost the economy by investing a record 5,957 trillion rupiah (USD 412 billion) in Infrastructure projects from 2020 – 2024. Around 40% will be directly funded by the government, 25% through state-owned enterprises and the rest through the private sector. More than half (60%) of the funds will be allocated to transport-related Infrastructure according to drafts of the plans. Furthermore, about 17% of Infrastructure spending will go to Energy, while irrigation will receive 10%.
Connectivity is seen as the key driver for higher economic growth in Indonesia, as the country is dispersed over 17,000 islands which makes building critical Infrastructure costly and logistically complicated. Low tax compliance and weak commodity prices have challenged the government’s ability to take on large-scale projects.
The new spending plan is about 5.7% of the projected GDP from 2020-2024, during which the government projects an economic growth up to 6% according to the proposal draft. Apart from upgrading 165 airports and the development of water-based facilities for seaplanes, better Infrastructure resulting from the investments would also support the government’s push towards attracting more tourists and closing the current account deficit.
Improving Indonesia’s Infrastructure was a top policy priority for Indonesian President, Djoko Widowo (Jokowi)’s first term. Jokowi won a second term in this year’s elections. In his first budget, Jokowi reduced subsidies by almost half and allocated most of the freed funds to Infrastructure spending, an increase of 66% over the last state budget. For the latest 2019 State Budget, Infrastructure spending stood at IDR 420 trillion (USD 30 billion), which though relatively flat compared to the IDR 410.7 trillion in 2018, implies a CAGR of 21% for Infrastructure spending during Jokowi’s first 5-year administration.
(Sources: The Star; Jakarta Post; Straits Times)