Vocational school students taking part in a national exam at a school in Serpong, South Tangerang, Banten, on Monday (03/04). The Asian Development Bank (ADB) said the skills gap is a major constraint for Indonesia to achieve its full growth potential. (Antara Photo/Muhammad Iqbal)

ADB Maintains Indonesia Growth Forecast, Highlights Need to Close Skills Gap


APRIL 06, 2017

Jakarta. The Manila-based Asian Development Bank is maintaining its view that Indonesia's gross domestic product growth will accelerate this year, expecting improvements in private investment and trade.

The ADB kept its 2017 forecast at 5.1 percent in its annual Asian Development Outlook, published on Thursday (06/04). The bank expects Indonesia's economy to grow by 5.3 percent in 2018. The country's $930 billion economy expanded by 5 percent in 2016.

"We see growth at a very healthy pace," said Winfried F. Wicklein, ADB's new country director for Indonesia.

Wicklein said the country is expected to welcome more private investment on the back of the government's string of policy reforms aimed at reducing byzantine regulations and opening more sectors of the economy to foreign investors.

The ADB also highlighted the skills gap as a major constraint for Indonesia to achieve its growth potential. Indonesian graduates often do not have the skills required by industry, despite government spending 20 percent of annual state budget on education.

"Efforts should focus on developing strategies for mobilizing public and private resources for education and training, as well as making spending on public education more efficient," Wicklein said.

The Indonesian government set aside Rp 416.1 trillion ($31.2 billion) for education in the 2017 state budget.

Sustained growth, however, also requires continued efforts to improve infrastructure and deepen structural reform.

If the government delays the implementation of policy reforms and neglects to resolve revenue shortfalls, it would lead to delays in infrastructure development, the ADB said.

The bank noted in its report that the country will also face global policy uncertainties, a possible weaker recovery in commodity prices, lower-than-expected economic growth among its trade partners and interest rate adjustments.