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All Journal Economics and Finance in Indonesia
I Gede Sthitaprajna Virananda
Faculty of Economics and Business, Universitas Indonesia
Economics, Econometrics & Finance

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Fiscal Sustainability in Indonesia with Asymmetry Mohamad Ikhsan; I Gede Sthitaprajna Virananda
Economics and Finance in Indonesia Volume 67, Number 1, June 2021
Publisher : Institute for Economic and Social Research

Show Abstract | Download Original | Original Source | Check in Google Scholar | Full PDF (454.022 KB) | DOI: 10.47291/efi.v67i1.731

Abstract

The management of fiscal balance determines public debt sustainability, where a positive response of primary balance towards the debt ratio indicates a sustainable path. However, there might be asymmetry in the government’s fiscal management between different phases of the debt trajectory and business cycle. This study examines the sustainability of fiscal imbalance and public debt in Indonesia using the fiscal reaction function with annual fiscal data from 1976 to 2019. We incorporate asymmetry by decomposing the lagged debt ratio and cyclical output variables into their positive and negative partial sums. We find that Indonesia’s fiscal imbalance is on a path of weak sustainability as revenue grows more slowly than expenditure in the long run, with the bi-directional Granger causality between the two indicating fiscal synchronization. Long-run public debt sustainability is on a more sustainable path as primary surplus responds positively to the debt ratio. However, our asymmetric analysis suggests that this might be a false impression as primary balance decreases only in response to debt ratio decrease but increases less or fails to increase when the debt ratio rises, which is potentially dangerous.
The Productivity and Future Growth Potential of Indonesia Mohamad Ikhsan; Sri Mulyani Indrawati; I Gede Sthitaprajna Virananda; Zihaul Abdi; Canyon Keanu Can
Economics and Finance in Indonesia Volume 67, Number 2, December 2021
Publisher : Institute for Economic and Social Research

Show Abstract | Download Original | Original Source | Check in Google Scholar | Full PDF (734.392 KB) | DOI: 10.47291/efi.v67i2.996

Abstract

The output per worker of Indonesia has been on a downtrend since 2010, with total factor productivity (TFP) and capital stock largely stagnant if not declining. This paper discusses stylized facts that may explain recent trends in the productivity and growth potential of Indonesia. The decomposition of output per worker reveals the declining contribution of human capital, which is also most negative among peer countries. The growth in labor productivity has been concentrated within sectors, implying room for gains from labor reallocations. A substantial share of employment and credit in Indonesia has shifted to the relatively unproductive service sectors, particularly wholesale and retail trade. In terms of firm dynamics, the contribution of large firms in Indonesia has been lackluster compared to regional peers while the productivity of micro, small and medium enterprises remains stagnant. Considering that human capital and TFP measures of Indonesia are lagging behind middle-income peers, there is wide scope for Indonesia to catch up. However, the potential output of Indonesia also faces new risks from the COVID-19 pandemic. We expect that the short-term effect of the pandemic on capital accumulation and the long-term effect on human capital pose the highest risk while labor inputs appear to be more resilient. Meanwhile, the potential productivity gains from accelerated digital adoption and sectoral reallocations are more uncertain.
Co-Authors Canyon Keanu Can Mohamad Ikhsan Sri Mulyani Indrawati Zihaul Abdi