Logo of Phnom Penh Post newspaper Phnom Penh Post - Virus variants an Indonesia GDP recovery risk

Virus variants an Indonesia GDP recovery risk

Content image - Phnom Penh Post
A police officer stands guard near a shipping container containing Covid-19 vaccines produced by AstraZeneca at Soekarno-Hatta International Airport in Tangerang, Banten, on May 8. Indonesia received 1.3 million doses of the AstraZeneca vaccine under the COVAX facility, a multilateral effort that aims for equal global access to vaccines. ANTARA/THE JAKARTA POST

Virus variants an Indonesia GDP recovery risk

The emergence of new Covid-19 variants is expected to weigh on Indonesia’s economic recovery and may cause the government to miss its target of growth between 4.5 and 5.3 per cent this year.

The government reported on May 17 that 24 cases involving new variants, including sub-variants of B.1.617, also known as the Indian variant, had been detected in the country, some as a result of local transmission and others as imported cases.

The new variants may prompt the government to tighten or prolong mobility restrictions if they lead to a surge in cases, limiting activities in the economy, lowering consumer and business confidence and thus slowing down the recovery, according to Faisal Rachman, an economist at state-owned Bank Mandiri, the second-largest lander in the country by asset value.

“The risk of economic growth being lower than the target range outlined by the government is [high] if the government cannot successfully control the new virus variants coming into Indonesia and amid public mobility especially during this mudik [exodus] season,” Faisal told The Jakarta Post in a text message on May 17.

The new variants emerged at a time when Indonesia’s economic growth increasingly inched toward positive territory, as it contracted by 0.74 per cent year-on-year in the January-March period, marking a less severe drop than in the previous quarters, according to data from Statistics Indonesia (BPS).

Financial intelligence firm Moody’s Analytics has forecast 7.94 per cent annual growth for Indonesia’s economy in the April-June period even after accounting for the Ramadan social restrictions, partly due to the base effect, according to its May forecast.

The median forecast for Indonesia’s growth this year stands at 4.45 per cent, based on the latest estimates from the World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB) and the Organisation for Economic Cooperation and Development (OECD).

However, coupled with a slower global economic growth and weaker commodity prices, a severe tightening of mobility restrictions is estimated to lower the country’s growth to 3.1 per cent this year and 3.8 per cent next year, according to the World Bank’s estimate outlined in its December 2020 outlook.

Griffith University epidemiologist Dicky Budiman said the government might need to consider an option of imposing large-scale social restrictions (PSBB), first and foremost across Bali and Java, after Idul Fitri, for which millions usually travel back to their hometowns, to anticipate an expected surge in cases.

The government on May 17 reported 4,891 new Covid-19 cases, continuing a downward trend since the mid-January peak in daily new cases. But the daily test positivity rate stood at 15 per cent, three times higher than the threshold signifying sufficient testing according to World Health Organisation (WHO) guidelines.

As of May 8, Indonesia recorded 13 cases involving the UK variant, 10 cases of Indian variants and one case of the B.1.351 variant. Most cases involving new variants were found in South Sumatra and South Kalimantan.

The new, more transmissible B.1.617.2 variant has been linked to the recent surge in cases in India. Following the renewed outbreak in India, neighbouring Malaysia, Cambodia, Thailand and Japan, among other countries, also recorded spikes in daily new Covid-19 cases, according to Our World in Data.

“The main concern therefore is that we need to quickly administer vaccines and keep renewing it every year or two,” Dicky told the Post in a phone interview on May 10.

A resurgence in Covid-19 cases is expected to hurt the economy, because it would hit not only household spending but also trade, if Indonesia’s key trading partners are also dealing with a renewed outbreak, according to Soniza Zhu, an associate economist at Moody’s Analytics.

The government has allocated 699.43 trillion rupiah ($49.27 billion) for this year’s Covid-19 stimulus, higher by around one-fifth than the actualised recovery budget last year. As of April 16, the government had disbursed 134.07 trillion rupiah of the funds.

But greater fiscal spending will weigh on the state budget, as the government seeks to gradually bring down the budget deficit to below the normal threshold of three per cent of the country’s gross domestic product (GDP). This year, the deficit is estimated to stand at 5.7 per cent of the GDP.

“Wage and subsidy support has been an important cushion to the economy, but further fiscal stimulus is likely needed to lift lacklustre domestic consumption,” Zhu told the Post in an e-mail on May 11.

“However, the government’s ability to do this is constrained by declining government revenues and the risk of heightened sovereign yields and capital outflows should the budget deficit grow unchecked.”



  • Restrictions re-imposed in capital as Covid cases surge

    Amid the ongoing community outbreak of Covid-19, which has shown no sign of subsiding with 750 infections and 10 deaths reported on June 2 alone, the Phnom Penh Municipal Administration has decided to re-impose the suspension of all occupations and business activities deemed as posing high risk of

  • Phnom Penh-Sihanoukville expressway 51% complete

    The construction of the nearly $2 billion Phnom Penh-Sihanoukville Expressway is 51.35 per cent complete and is expected to be finished in 2023, according to Ministry of Public Works and Transport secretary of state Vasim Sorya. Invested in by Cambodian PPSHV Expressway Co Ltd, the first expressway in

  • First 7-Eleven store to open mid-June, ambassador says

    Thai retail conglomerate CP All Pcl will open Cambodia’s first 7-Eleven convenience store in mid-June, Cambodian ambassador to Thailand Ouk Sorphorn told The Post on June 1. The Bangkok-listed 7-Eleven franchise operator, the retail arm of Charoen Pokphand Group Co Ltd, granted CP All (Cambodia)

  • With herd immunity likely in 2022, is Cambodia ready to reopen for tourism?

    The government aims to inoculate 80 per cent of the target population by June next year, giving it a head start among regional peers to reboot the sector but first, it has to do a few things to up its game A sign on a glass

  • US embassy guard gets Covid despite two doses of Pfizer jab

    The Covid-19 tracking commission on June 4 said a security guard at the US embassy in Phnom Penh had contracted the novel coronavirus, despite having received a second dose of the Pfizer-BioNTech shot two weeks ago. Embassy spokesperson Chad Roedemeier confirmed the SARS-CoV-2 infection to The

  • US wants 'full access' to Ream Naval Base

    On June 11, the US embassy's Defense Attaché Colonel Marcus M Ferrara visited Ream Nava Base in coordination with Cambodian officials following the recent approval of Prime minister Hun Sen to allay the concerns on Chinese military presence at the base as raised by US Deputy