PwC Indonesia

Economic Update
Brace for Impact?

First Quarter 2023

Foreword

Back in early 2020, we saw global supply and demand slump as the pandemic hindered mobility and
crippled many economic activities. Later on, as vaccines became available at the end of 2020, demand
started to recover. However, during 2021, scattered production networks could not keep up with the rising
demand. This caused a hike in prices, driving the world into a high inflationary period that had not been
seen for decades. In 2022, supply chain pressure was significantly eased. However, the Russia-Ukraine
war fuelled inflation further as the conflict cut the supply of crucial energy and food commodities. By the
end of 2022, the world was on the brink of a cost-of-living crisis.

Entering 2023, we expect three things to dominate global economic dynamics. First, the fight against
commodity price increases. Second, the prolonged Russia-Ukraine war. Third, aggressive monetary
tightening to combat inflation by central banks around the globe. The situation is even more complicated
because countries face significant debt burdens, leaving only limited choices for action.

Looking at domestic economic dynamics, we have seen the Indonesian economy thriving and recovering
after the pandemic, with strong economic growth of 5.31% and an inflation rate of 4.4% in 2022. The
combination of pragmatic social distancing measures, various subsidies, economic relaxation, and social
assistance was crucial to Indonesia’s success in escaping the turmoil of the pandemic. Nevertheless, the
efforts were costly, with Indonesia’s total public debt-to-GDP ratio increasing from around 30% before the
pandemic to over 40% after the pandemic.

We expect Indonesia’s economy to grow by 4.8% in 2023 and inflation to decrease to 4.0%. These
numbers undoubtedly reflect a global economic slowdown, although they still put Indonesia among the
fastest-growing large economies globally and ensure it will remain an engine of growth for the Southeast
Asia region. Consumption, which contributes to more than 50% of Indonesia’s total GDP, is expected to
stay strong and become a significant source of growth. In addition, high commodity prices have
significantly boosted Indonesia’s state budget since more than a third of Indonesia’s exports are
commodities and significant revenue contributors for the government. The potential sources of the
slowdown are expected to primarily be external factors such as the weakening of investment and trade.

This report is the first PwC Indonesia Economic Update. This edition focuses on recent global economic
developments, especially significant sources of global uncertainties, and provides broad coverage of
Indonesia’s recent economic developments. We also give special attention to Indonesia’s green transition
and decarbonisation efforts. Specific updates regarding poverty, health, education and governance are
also discussed.

We hope that this report brings significant value to readers and serves as a guide to those interested in
Indonesia’s economy.

Julian Smith Denny Irawan

Director Head of Research and Economics
PwC Indonesia PwC Indonesia

2
Contents and Disclaimer

Table of Contents Page

Key Points 4
How Did We Arrive Here? 6
Global Economic Update 8
1. Global Economic Update 8
Indonesia Economic Update 14
2. Key Highlights in Indonesia 14
3. Green Economy 17
4. Gross Domestic Product 21
5. Monetary and Financial System 23
6. Trade 29
7. Investment 32
8. Government 34
9. Development 37
10. Governance 42
Contacts and Services 44

How to cite this document

PwC Indonesia. 2023. PwC Indonesia Economic Update: Brace for Impact? First Quarter 2023.
Jakarta: PwC Indonesia.

3
Key Points

Global Economic Update

Global trends over the past three years have been marred by the rise of and recovery from
the COVID-19 pandemic, escalated tensions among major economic partners, supply
1 chain disruptions and high commodity prices. We expect the fight against commodity price
increases, the prolonged war in the Ukraine and rising interest rates to be the key
economic stories of 2023.
Indonesia Macro Highlights
Economic recovery and growth were gaining traction throughout 2022, supported by strong

2 export, investment and household spending growth. However, downside risks, such as
weak global demand, capital outflow, currency pressures and tight global financial
conditions could potentially hinder growth momentum over the next four years.
Indonesia's economy is expected to experience a mild slowdown in 2023. Growth is

3 projected to be 4.8% in 2023. Nevertheless, the figure is encouraging considering that the
world’s economies are expected to experience a major ‘slowbalisation’ in 2023 as the
battle against inflation continues.
The increases in subsidised petrol and global commodity prices pushed up annual inflation

4 in 2022. Inflation has since cooled down as Bank Indonesia has been switching to a more
aggressive monetary policy stance. However, inflation is expected to stay above Bank
Indonesia’s target of 2-4% in 2023.
Trade
Indonesia has revived its international trade activities while strengthening trade
5 partnerships with other economies. Such measures are expected to provide a cushion
against the economic uncertainty of 2023.
Potentially low export growth could arise from slowing global growth, but Indonesia’s core
6 commodity exports (i.e. coal, palm oil, and nickel products) would remain in strong demand
as long as the Ukraine war drags on.
Investment
Indonesia’s foreign and domestic investments reached their all-time high in 2022. The Job
Creation Law, which harmonises government policies from the regional to central levels,
7 has improved the attractiveness of investing in Indonesia. Sustainable investment, which
seeks to balance financial returns with Environmental, Social, and Governance (“ESG”)
aspects, is the key area to focus on over the next ten years.
Government and Development
The Government of Indonesia has made efforts to mitigate the potential adverse effects of
8 economic uncertainty, focusing on shielding purchasing power and nurturing investment
opportunities while still making strides towards a green transition.
The Government of Indonesia’s efforts to improve living standards are constrained by its

9 budget capacity, and the government needs to increase coverage and quality
infrastructure. More focus on Eastern Indonesia is expected considering the uneven
development that disproportionately affects the region.
The Government of Indonesia’s current priority is to maintain purchasing power through

10 smart subsidies and concurrently keep its budget deficits below 3% of Indonesia’s GDP. It
seeks to do this primarily by increasing tax and non-tax revenue and improving spending
efficiency.

4
 What makes Indonesia’s economy
safe (and not)?

Consumption Investment
- Strong bases and the biggest contributor of GDP - Indonesia’s quarterly foreign direct investment
- High levels of consumer confidence (+100) C (“FDI”) realisation consistently posted new records
- Smart subsidies (e.g. for fuel and electricity) and
social assistance programmes from the government
I in 2022
- Only a mild slowdown in the top sources of FDI is
protect consumption from external shocks expected in 2023
- Manageable inflation (4.4% in 2022)

Government Trade
- High commodity prices increase non-tax revenue - Surpluses have been consistently posted since 2020
- Strong revenue streams sustain expenditure and
X- - Main trading partners only expect moderate
subsidies
- Manageable budget deficit (2.8% of GDP in 2022) G M
slowdown
- Regional Comprehensive Economic Partnership
- Concerns regarding budget absorption (quantity (“RCEP”) ratification is a strong catalyst for trade
and quality) growth

C-I-G-X-M at Glance

The projections for the global economy as a whole are gloomy, but emerging Asian economies are the exception. We
expect Indonesia to experience only a mild slowdown. To understand why, we would like to use the basic GDP formula,
which comprises consumption (C), investment (I), government spending (G), exports (X), and imports (M). The overall
projection for each of these five components looks promising, although some slowdowns are expected, especially for
components that rely heavily on external factors (investment and trade).

Consumption remains the most significant contributor to Indonesia's economy, having contributed more than 50% of
GDP over at least the last ten years. The share remains stable at around 55% from 2010 to 2022. Consumer confidence
was maintained at an optimistic level (>100) in 2022, as reported by Bank Indonesia. In addition, the Government of
Indonesia (“GoI”) was relatively successful in shielding consumption from global inflationary pressure with various
subsidies such as those for fuel, electricity and social assistance. Combined with accommodative monetary policy, such
initiatives resulted in a manageable 4.4% inflation level in 2022. With inflation peaking globally and central banks
worldwide remaining cautious, we expect Indonesia's domestic consumption to remain strong. The coordinated effort
between fiscal and monetary policies is essential to maintaining purchasing power.

Investment became the second largest contributor to Indonesia's GDP, with a 32.1% contribution in 2022. During 2022,
the quarterly FDI realisation figures kept hitting new records. Based on 2021 data, the top five FDI contributors are
Singapore (expected growth in 2023 of +2.3%), China (+4.5%), Japan (+1.2%), Hong Kong (+3.9%) and Malaysia
(+4.0%). These countries are expected to experience a mild slowdown in 2023 but comfortably avoid recession, in
contrast to advanced Europe economies. The easing of zero-COVID restrictions in China means that the country now
expects accelerated growth and investment in 2023. From the sectoral perspective, based on Indonesia’s FDI realisation
in 2022, the top sectors are base metal and metals manufacturing, mining, chemicals and pharmaceuticals,
transportation, and telecommunications.

The government budget is essential to maintaining Indonesia's economic growth. Although the GoI is still struggling to
achieve the 15% tax-to-GDP ratio target, its budget’s role remains to be an important source of national growth. High
commodity prices always have a dichotomous impact on Indonesia's fiscal budget. High energy prices, especially for oil
and fuels, have a negative impact as the GoI needs to pay more for subsidies. However, high commodity prices for
commodities such as coal, gas and palm oil bring a significant windfall to government revenue, mainly due to the tax and
royalties from these commodities. Total government revenue in 2022 increased by 30.58% YoY. We therefore expect there
to be sufficient budget for subsidies to shield consumption and manage inflation. However, there are concerns on
absorption capacity, both in terms of quantity and quality.

Lastly, from the trade perspective, Indonesia has been performing strongly and has been consistently posting trade
surpluses since 2020. We expect this trend to continue, considering Indonesia's primary trading partners will only
experience a mild slowdown, and Indonesia’s top export commodity prices remain strong. The top five Indonesian export
destinations, along with their growth projections in 2023, are China (+4.7%), USA (+0.2%), Japan (1.2%), India (+5.4%)
and Malaysia (+4.4%).

5
 How did we arrive here?

Global trends over the past three years have been marred by the rise of and
recovery from the COVID-19 pandemic, escalated tensions among major
economic partners, supply chain disruptions, unprecedented degrees of
inflation and increases in commodity prices.

Global Economic Overview

The timeline below provides a brief geopolitical and economic overview of the events that
occurred in the years 2020, 2021 and 2022.

Global
● On 31 January 2020, Britain left the European Union and entered a one-year transition period
as it settled into its newfound position in the world.
● On Black Monday – 9 March 2020 – the Dow Jones Industrial Average (“DJIA”) fell by nearly
3,000 points due to panic buying, which caused banks and reserves to cut interest rates and
provide stimulus cheques to help keep economies afloat.
● On 4 August 2021, COVID-19 had infected more than 200 million people, although many
developed countries started to reopen their economies.
● Between 15-16 November 2022, world leaders gathered in Bali for the G20 Summit to
discuss significant issues concerning the world economy, including green transition, recent
development of the COVID-19 pandemic and Russia's war on Ukraine, while repledging
commitments to keep the peace and ensure productivity.

Indonesia
● On 1 January 2020, Indonesia implemented a nickel export ban to protect domestic
production and sustainably create more value-added nickel products in the future.
● On 15 February 2022, Indonesia passed a bill to relocate its capital city to Nusantara (Ibu
Kota Negara/“IKN”) in the Eastern Kalimantan province.
● On 30 December 2022, Indonesia lifted its COVID-19-related restrictions to enter the
endemic period.

Figure 1. Key economic, financial and political events between 2020-2022

6
How did we arrive here?

Detailed geopolitical and economic events that happened in the years 2020, 2021 and 2022:

2020: The beginning of the COVID-19 pandemic.

This unprecedented global phenomenon posed challenges to ways of working and connectivity, changing the
1 lives of millions of people worldwide.
Many were unprepared for the severity and contagiousness of the virus. When the World Health Organisation
2 (“WHO”) declared a pandemic in March 2020 and casualties began to increase at an alarming rate, there was
widespread panic. This led to countries shutting down borders to protect domestic interests.
Cost-cutting mechanisms affected many sectors and led to many workers becoming unemployed. Consumers
3 also altered their purchasing behaviour, with many buying only necessities. As a result, many emerging
countries dependent on labour, trade and tourism were heavily affected.
In March 2020, Indonesia implemented large-scale social restrictions (Pembatasan Sosial Berskala
Besar/“PSBB”) and reached an all-time high unemployment rate of 7.1% in August 2020. In addition, the
4
controversial Job Creation Law signed in November 2020 was met with public outrage for being too
pro-foreign-investment and debilitating the existing conditions of domestic workers and the environment.

2021: Mass vaccination and reopening of economies tempered by supply chain and labour market disruption.

Global vaccine deployment offered a new path out of the pandemic in 2021. Nations slowly opened up their
1 borders and resumed halted activities in what came to be known as “the new normal”.
The vaccination reach differed from country to country. Each was faced with its own specific challenges regarding
2 economic and social recovery.

President Joe Biden’s inauguration at the start of 2021 promised USD 1.9 trillion in economic relief, which was
3
estimated to increase US GDP growth by 6%. The bill was later signed in March 2021.
The unexpected recovery in the demand for goods and services was at a crossroads due to a shortage of workers
and manufacturing facilities being strained at maximum capacity. When a container ship blocked the Suez Canal in
March 2021, many fleets bringing cargoes of raw materials, equipment and numerous other goods faced delays in
4
reaching their destinations. This incident created a daily total loss of USD 10 billion and resulted in many industries
having to rely on existing inventories in response to shortages, which contributed to the increase in global inflation
to 3.4%.
Supply chains and labour markets were put into further disarray when the more deadly and contagious COVID-19
variant – Delta – appeared. Despite Indonesia’s extension of its public activities restrictions, enforcement of mask
5
mandates and provision of vaccinations to persons aged 18 and above throughout the year, Indonesia still reached
a peak of more than 30,000 deaths in July 2021.

6 In August 2021, the total number of infected cases exceeded 200 million worldwide. By November 2021, the Delta
variant had spread to 179 countries and was closely followed by the Omicron variant.

2022: Economic impact of Russia’s invasion of Ukraine.

The effects of President Vladimir Putin’s so-called "special military operation" in Ukraine added another layer of
1 disruption to financial, human and commercial links around the world. Such disruption was most evident in Europe,
Asia and Africa
2 Hit with international sanctions from the G7 and other countries, Russia’s trade activity stagnated.

A crisis in commodity prices erupted. Food (e.g. wheat, cooking oil) and energy (e.g. petrol, gas) were the hardest
hit. In April 2022, vegetable oil prices peaked globally (prices increased by 23%), which affected household
spending and industries reliant on oil. Gas prices also hit an all-time national high of USD 5 per litre in June. To
3
remedy some of its fallen revenue, Russia retaliated to the price caps on its oil and other products by announcing
export bans aimed at the G7 and other countries complying with the caps. Such bans were announced in
December 2022 and will take effect in early 2023.
The widespread increase in prices led to inflationary pressures and the slowing down of many economies. In
response, central banks increased their national interest rates.The Fed increased its interest rates to 0.4%
4
(marking the first increase since 2018) in March 2022 and Bank Indonesia similarly increased its interest rates to 7
3-4.5% (again marking the first increase since 2018) in August 2022.
1. Global Economic Update

The fight against commodity price increases, the prolonged war in the Ukraine
and rising interest rates are expected to be the key economic stories in 2023.
Despite such challenges, as we enter 2023, the global economic outlook
appears to be more optimistic than expected as the probability of recession has
reduced.
1.1. Global Economic Overview

Figure 2. Global, G7, E7 and Indonesian economic growth, Consumer Price Index (“CPI”) inflation and policy
rates
Policy rate
Economic growth CPI inflation

Economic 2018 2023f 2028f CPI 2018 2023f 2028f Policy 2018 2023f 2028f
growth Inflation rate

Global 3.27% 1.85% 2.75% Global 2.92% 5.17% 2.69% Global 3.21% 4.78% 3.27%

G7 1.67% -0.16% 1.31% G7 1.92% 4.51% 1.92% G7 0.67% 3.48% 1.98%

E7 4.00% 2.24% 3.57% E7 5.29% 10.72% 4.24% E7 8.90% 6.99% 5.91%

Indonesia 5.17% 4.80% 4.96% Indonesia 3.20% 4.00% 4.04% Indonesia 6.00% 6.25% 6.50%

Threat of stagflation (i.e. low growth with high inflation) accompanied by contractionary
monetary policies. Global GDP is projected to grow by around 1.6% in 2023. US economic growth is
estimated to slow down to 0.2%, which will represent a mild downturn rather than a technical
recession. On the other hand, the economic outlook in the Eurozone is bleaker, likely due to the
reduced supply and higher prices of natural gas. In the case of E7 countries, India is predicted to be
the fastest growing G20 economy, while Indonesia's economy is estimated to experience the highest
growth in Southeast Asia. China's GDP is expected to expand by 4.7%, subject to how the country
shifts away from its zero-COVID policy.

Inflation rates are expected to fall by at least a quarter in around half of the Organization for
Economic Co-operation and Development (“OECD”) economies due to a combination of tighter
monetary policy and slowing global demand; such factors should put downward pressure on prices in
2023. Having a high starting point, Turkey is projected to experience the sharpest fall in inflation from
73% in 2022 to around 42% in 2023. China might become one of the few countries that sees its
inflation rate rise in 2023; this could occur due to its insulation from inflationary pressures in 2022.
Overall, despite the general fall in inflation rates that has been predicted, annual inflation is expected
to remain above target in 2023 in almost all the countries that experienced high inflation in 2022.

Sources: PwC Global Economy Watch (2023); World Bank (2023); IHS Markit (2023); PwC Analysis (2023).
Notes: G7 countries consist of the United Kingdom, Germany, France, Italy, Japan, United States, and Canada. 8
E7 countries consist of the People’s Republic of China, Russia, Indonesia, India, Mexico, Brazil, and Turkey.
1. Global Economic Update

1.2. Global Inflation In most developed countries, consumers have

suffered the most from the inflationary pressure.
Global inflation was at a three-decade high in 2022, The limits placed on Russia’s exports and the
which prompted rapid monetary tightening by disruption in the global supply chain were the main
many central banks around the world. The yearly causes of rising energy and commodity prices
increase in global Consumer Price Index (“CPI”) worldwide, especially in the EU. Russia accounts for
surged to a three-decade high of 7.0% in 2022. The around 10% of global oil production and around 40% of
inflationary pressure was mainly driven by fuel, food the EU’s natural gas imports. In addition, Russia and
and energy prices. Among G7 countries, the UK had Ukraine are key global producers of several foods and
the highest inflation rate of 9.0% in 2022. This was raw materials, including wheat, sunflower oil and
followed by Italy and Germany, which had inflation fertilisers. Cost pressures in industries that are reliant
rates of 8.5% and 8.2%, respectively. on Russian commodities led to inflationary pressure in
all G7 countries throughout 2022.
Rising inflation rates worldwide have caused central
banks to raise benchmark rates faster than expected, Headline inflation worldwide eased in the fourth
especially in the United States and the Euro area. The quarter of 2022, following the steep increase in
rapid increase in interest rates triggered an previous quarters. Rapid monetary policy tightening,
appreciation of the US Dollar against currencies in cooling demand and supply chain resilience started to
emerging markets, including Indonesia. ease inflationary pressure worldwide at the end of
2022. The global inflation rate of 7.0% in Q4 2022 was
Table 1. Interest Rates of Leading Central Banks
lower than the global inflation rate of 8.3% in Q3 2022.

Interest Rate Current

Expectation Global inflation is expected to continue to cool
Bank (August Interest Rate down in 2023. Inflation is expected to have declined
in 2023
2022) (1 Jan 2023)
by the end of 2023 assuming that the impact of the
Russia-Ukraine war fades and disruption in global
Federal 2.25 - 4.25 -
reserves 2.50% 4.50% Rising to supply chains eases. However, further shocks to
between energy and food prices could potentially keep headline
4.5% and inflation1 higher for longer. As energy prices are and
Bank of 5.0%
1.75% 3.50% will remain particularly sensitive to geopolitical
England
tensions, households and businesses will need to
Rising to brace for further price increases if the tension in
ECB 0.50% 2.50%
between Ukraine persists.
3.5% and
4.0%
The impact of high inflation rates is expected to be felt
Source PwC Global Economy Watch (2023) more in countries where disposable income is more
sensitive to energy and food prices and where a
relatively large share of the population is at risk of
poverty. This will put continued pressure on
governments to provide more support for low-income
Figure 3. Historical Inflation in G7 Countries (%YoY) households.

Source: Federal Reserve Economic Data (2023)

Notes: 1) Headline inflation is a measure of the total inflation within an economy and includes commodities such as food and energy prices, which tend to be much
more volatile and prone to inflationary spikes.

9
1. Global Economic Update

1.3. Global Commodity Prices

The increase in wholesale energy prices globally pushed overall commodity price indexes in
2021 and 2022. Commodity price indexes started to increase in early 2021 in the wake of the
COVID-19 pandemic and growing international demand. During the pandemic, many suppliers had to
restrict production and limit labour work hours, which led to global supply chain disruption. The
disruption has caused commodity prices to diverge, with energy prices increasing more than
non-energy prices.

The Russian-Ukraine conflict pushed up the prices of commodities further Commodity Price
in 2022. Commodity prices increased in Q1 2022, reflecting the effects on the
global economy of the trade sanctions imposed by the EU, the UK and the US. Growth (Q4 2021-
The increases in prices were more significant for commodities where Ukraine and
Russia are large exporters such as natural gas, crude and refined petroleum, Q4 2022)
coal, nickel, fertilisers, wheat and sunflower oil.

Figure 4. Commodity price, 2020-2022 (index)1

Energy Foods
and and Raw
Metals Materials

[+] Vaccine and Russia invaded

economy reopening Ukraine +23% -21%
[-] Global supply
chain and labour Average Palm oil
market disruptions
crude oil spot
257

+183% +28%
Australia Rubber
Coal
146

+69% -4%
South Africa Rice
Coal

+38% +28%
Source: International Monetary Fund (“IMF”) (2023), Primary Commodity Market (2023)
NIckel Wheat

Both energy and non-energy commodity prices declined in Q4 2022 as

global economic growth slowed down. Energy prices have begun to retreat,
although the prices of several commodities remain relatively high. Coal prices, for -4% +4%
instance, remain high as demand is still relatively high in comparison to other Gold Soy
commodities; many developed countries have turned to coal as an alternative to
natural gas imported from Russia. As a result, coal prices were relatively high at
the end of 2022.
+78%
Non-energy prices also declined in Q4 2022. Metal prices declined the most
among non-energy commodities between Q3 and Q4 2022, reflecting weak Natural Gas – Europe Title
demand globally due to China’s slow economic recovery from the pandemic. Transfer Facility (“TTF”)
Food and raw materials prices have also declined as the threats of food
shortages that arose in early 2022 have diminished.

Note: 1) Equally weighted average crude oil spot price of West Texas Intermediate (“WTI”), Brent, and Dubai 10
1. Global Economic Update

1.4. Economic Policy Uncertainty

The Global Economic Policy Uncertainty (“GEPU”) index peaked at the onset of the economic
crisis triggered by COVID-19. During the early stage of the COVID-19 pandemic, the global index
surged in all G7 countries, reflecting the risks and uncertainties affecting government policies and
regulatory frameworks.The index remained stable in 2021 as the global economy began to recover
from the pandemic, but rose again in 2022 due to the Ukraine war.

Figure 5. GEPU index, 2020-2022 (monthly index)1

[+] Vaccine and

economy reopening Russia invaded
COVID-19 Ukraine
Started [-] Global supply
chain and labour 747
market disruptions

382

303

241
216

106

86

Source: Baker, Scott, Bloom, and Davis (2016), Measuring Economic Policy Uncertainty (accessed in 2022)

The GEPU index increased throughout 2022. The GEPU index reached its annual peak in the first
quarter of the year. The index has reached levels close to what was seen around the September 11
attacks in the United States in 2001 and the United Kingdom’s 2016 vote to leave the European
Union. However, the global index was lower in Q1 2022 than in the early stage of the COVID-19
pandemic, at which time the index reached the highest level seen in the past three years. Some of
the main triggers for rising uncertainty in 2022 included high inflationary pressures, the appreciation
of the US Dollar against other currencies, interest rates hikes, and supply chain disruptions.

Countries in Europe ranked higher than the rest of the world in terms of economic policy
uncertainty. Countries that have a significant economic relationship with Russia, including Germany,
the UK and France, had the highest uncertainty index in Q4 2022, indicating the pronounced impact
the Ukraine war has had on Russia’s trade partners. Germany, with the steepest increase of 133%
from Q3 2021 to Q3 2022, was the most affected by the war. A high uncertainty index in a given
country may be reflective of the lack of clear direction in the country's policy making, which can lead
to prolonged delays in spending and investment by households and businesses.

Notes: 1) GEPU is an index constructed based on newspaper articles regarding policy uncertainty from leading newspapers. It counts the
number of newspaper articles containing the terms “uncertain” or “uncertainty”, “economic” or “economy”, and one or more policy-relevant terms.

11
1. Global Economic Update

1.5. Financial Market Volatility

The global financial market remained relatively stable amid recession fears over the past three
years. Global financial market volatility, which is measured by the Volatility Index (“VIX”)1 and
systemic risk (“SRISK”)2, has not exhibited a sudden increase or decline, except for during the onset
of the COVID-19 pandemic in Q1 2020. Volatility declined as economies started to recover from the
pandemic in Q1 2021, but rose again in Q1 2022 due to the Ukraine war. Both the VIX and SRISK
declined in December 2022, reaching their lowest levels in more than three months.The decline was
likely to be due to investors' increased bullishness about the stock market’s future prospects in Q4
2022 as compared to Q3 2022.

Figure 6. Global Volatility Index (monthly index)

COVID-19 [+] Vaccine and

Started economy reopening Russia invaded
[-] Global supply Ukraine
chain and labour
market disruptions

Sources: V-Lab (2023), Chicago Board Options Exchange (2023)

SRISK also declined in Q4 2022. The
Throughout 2022, the VIX was continuously Ukraine war increased the systemic
increasing. The growth remained stable and did not vulnerabilities of the global financial
increase above the level that was reached in Q1 2022 system in 2022, which led to an increase
during the pandemic. The escalating Russia-Ukraine in the SRISK index during the year.
conflict, combined with ongoing inflation and rate-hike Following the VIX, SRISK also declined
concerns,drove the VIX to its highest 2022 levels, in Q4 2022 as the impact of the war on
which occurred in May and October financial markets began to ease. The
lower SRISK in Q4 2022 implies that
The VIX declined in Q4 2022. The lower VIX in Q4 financial institutions were required to
2022 reflects the reduced uncertainty, risk and investor raise less capital in order to function
fears in relation to financial markets in response to the normally in the face of economies
easing of inflationary pressures. vulnerable to recessions.

Notes: 1) The VIX measures the expected volatility of the US stock market over the coming 30 days. 2) SRISK measures the capital shortfall of a
firm (and can be aggregated to country level) conditional on a severe market decline.

12
1. Global Economic Update

1.6. Global Foreign Direct Investment

FDI remained in fluctuation in 2022, although to a lesser extent than what had been observed in the prior
few years. When compared year on year (“YoY”), global FDI outflow and inflow in Q3 2022 grew by 7.1% and
18.3%, respectively. In 2021, the US made and received the highest amount of FDI at 23.6% and 23.2% of total
global FDI, respectively. If the US maintains or increases its interest rate in 2023, higher FDI inflow may be
potentially induced in 2023 as the higher return on investment may attract more foreign investors.

Figure 7. Global Foreign Direct Investment Flow, Figure 8. Global Top 5 FDI Flows (2021)
2017-2022 (USD billion)

FDI Outflow
429
USA Germany Japan China UK
352
$403.1B $151.7B $146.8B $145.2B $107.7B
(23.6%) (8.9%) (8.6%) (8.5%) (6.3%)

FDI Inflow

USA China Hongkong Singapore Canada

$367.4B $181.0B $140.7B $99.1B $59.7B
(23.2%) (11.4%) (8.9%) (6.3%) (3.8%)

Source: UNCTAD (2023)

Source: OECD (2023)

1.7. Global Trade

Slower global export growth in merchandise has been observed recently. Export merchandise YoY growth
experienced a steep increase from Q2 2020 to Q2 2021 as border restrictions that were put in place at the
beginning of the COVID-19 pandemic were relaxed and economies adjusted themselves to function alongside the
pandemic.

However, export merchandise YoY growth started to decline after its peak in Q2 2021 at 46.3%; by Q3 2022 it had
reduced to 12.4% with a trade value of USD 6,241 billion. The decline in 2022 occurred as the growth in export
value was measured relative to the value in 2021 when global trade was already in recovery. Growth peaked in
2021 as the growth in export value was measured relative to the value in 2020 when global trade was hit the most
by the pandemic.

International institutions such as the OECD expect slower growth in 2023. This is derived from the forecasted lower
import demand due to the anticipated economic downturn of major economies and the prolongation of the
Russia-Ukraine war.

Figure 9. Global Merchandise Export Value and Growth, 2017-2022 Q3 (USD billion and %YoY)
= Global merchandise
export value

12.4%

Sources: World Trade Organization (2023), OECD (2022) 13

2. Key Highlights in Indonesia

The Government of Indonesia has made efforts to mitigate the potential adverse
effects of economic uncertainty, prioritising shielding purchasing power and
nurturing investment opportunities

2.1 Perppu UUCK was ratified in the hope of providing reassurance for investors in the midst of global
uncertainty

The GoI ratified the Government Regulation in Lieu of Law No. 2/2022 for the Job Creation Law (Peraturan
Pemerintah Pengganti Undang-Undang Cipta Kerja/“Perppu UUCK”) on 30 December 2022. This overrides the
Supreme Court decision in 2021 that declared the Job Creation Law (Undang-Undang Cipta Kerja/“UUCK”) to
be conditionally unconstitutional.

The GoI argued that Perppu UUCK was necessary due to the looming threat of global economic downturns.
Through this regulation, the GoI expects that it will be able to provide the necessary legal assurance for
investors to mitigate the potential negative impacts.

Something to note is that the contents of Perppu UUCK related to investment are relatively unchanged
compared to the original UUCK. As of now, the main difference can be found in the labour section, specifically
in the provisions related to the minimum wage and outsourcing.

However, it remains to be seen whether there will be implementing regulations from Perppu UUCK that could
affect the investment provisions that were previously established by the original UUCK.
Figure 10. Comparison between UUCK and Perppu UUCK regarding labour regulations

Identified potential changes so far

Minimum wage
UUCK Perppu UUCK

The minimum wage formula is based on The minimum wage formula is based on
economic growth and inflation. economic growth, inflation, and certain
indices.
Note: Under GR 36/20211, the minimum wage is also
calculated based on: Note: Further provisions, especially those pertaining to
1. Average consumption the indices that will be used, are subject to implementing
2. Average number of household members regulations that have not been formulated.
3. Average number of working household members

Outsourcing
UUCK Perppu UUCK

The removed article initially stipulated under The regulation reinstated the provision that a
Law 13/2003 that a company might company may subcontract part of its work,
subcontract part of its work and included although provisions regarding the kind of work
provisions regarding the kind of work that that can be outsourced are subject to
could be outsourced. implementing regulations that have not been
formulated.
Sources: Indonesian Legal Brief (2022); PwC Analysis (2023).
Note: 1) GR 36/2021 is one of implementing regulations under UUCK

14
 2. Key Highlights in Indonesia

2.2 Nusantara, Indonesia’s new capital city, is Figure 11. Eight Key Principles of Nusantara
envisioned to be a “Global City for All”

The Indonesian Government is set relocate the

new capital city to East Kalimantan. The move
would see the Government’s administrative Design aligned
Bhinneka Connected, active,
functions moved away from Jakarta. The rationale of with natural
Tunggal Ika2 and accessible
the relocation includes: conditions

● Decentralisation: Minimise the income disparity

and uneven focus of infrastructure development
between Java and the rest of Indonesia.
● Water shortage in Jakarta: Jakarta does not Comfortable and
pipe in enough drinkable water, therefore most Circular and
efficient through
households have been relying heavily on wells, resilient
technology
which leads to the the land above collapsing.
● Minimise overpopulation in Jakarta: Reduces
the cost of high population density in Jakarta,
including traffic congestion and pollution.
● Coal phase out: The development of a ‘green’
capital city would slowly phase out the reliance Safe and Low carbon Economic
on coal in East Kalimantan as the main energy affordable emissions opportunity for
source. all

Jakarta is still expected to be Indonesia’s financial

and commercial center, where the majority of its
population is still expected to stay. One of the ultimate visions of Nusantara is to become a
“Global City for All”, a city that abides by inclusive and
The development of the new capital city has accessible urban development, as outlined by its eight key
entered the first stage of its development. This is principles (See Figure 11). It also has three special KPIs as
targeted to reach completion by 2024, which part of its goal of becoming a world-class city, namely:
includes the president moving to the new
presidential palace to celebrate Indonesia’s 79th 1. 10-minute walkable city
Independence Day. 2. 75% forest coverage within the city
3. Included in top 10 livable cities in the world
Figure 12. Nusantara Development Stages

Initial stage of moving to the new capital Develop the infrastructure and ecosystem of 3
(2020-2024) cities1 to accelerate the development of East
● Develop main infrastructures Kalimantan (2035-2045)
● Initial relocation of public servants ● Complete city intra and interconnectivity
● President to celebrate Indonesia’s 79th ● Become the number 1 FDI destination
Independence Day in the new capital in 2024 ● Become the top 5 destination in South East Asia
for global talent

Develop the new capital as a resilient core area Reinforce the reputation as a “Global
(2025-2035) City for All” (2045 onwards)
● Develop priority economic sectors ● Become one of the top 10 livable cities in
● Complete relocation of core government to the new the world
capital ● Reach net zero carbon emissions and
● Reach Sustainable Development Goals (SDGs) 100% renewable energy
target ● Become one of the leading competitive
cities in the world
Notes: 1) The three cities refer to Nusantara, Samarinda, and Balikpapan. 2) Bhinneka Tunggal Ika is the official national motto of Indonesia, inscribed in the National
emblem of Indonesia, translated as “Unity in Diversity”.
Sources: Bappenas (2023); PwC Analysis (2023) 15
2. Key Highlights in Indonesia

2.3 Indonesia split Papua into three new provinces: 2.4 Indonesia is gearing up towards the 2024
Highland Papua1, Central Papua, and South Papua. general election

Figure 13. Papua’s new provinces and their Figure 14. 2024 general election indicative timeline
respective economic potential

Election timeline
Highland Papua
2021 GRDP: IDR 12.6 trillion 29 July ‘22 - 13 Dec ‘22
Top 3 sectors: Election participant registration
1. Agriculture, forestry, and fishery and verification
6 Dec ‘22 - 25 Nov ‘23
2. Construction Legislative nomination
3. Public administration, defence, 19 Oct ‘23 - 25 Nov ‘23
and social security Presidential nomination
28 Nov ‘23 - 10 Feb ‘24
Election campaign
14 Feb ‘24
Voting day
15 Feb ‘24 - 20 Mar ‘24
Vote recapitulation
1 Oct ‘24
Legislative oath of office
20 Oct ‘24
Presidential oath of office

Central Papua
2021 GRDP: IDR 81.7 trillion
Top 3 sectors: Figure 15. 2024 general election estimated budget
1. Mining and quarrying
2. Construction and potential economic impacts
3. Wholesale and retail trade
Estimated budget IDR 76.6 trillion

Potential economic impacts

South Papua
2021 GRDP: IDR 17.1 trillion
Top 3 sectors: 1 Increased consumption
1. Agriculture, forestry, and fishery
2. Construction
3. Public administration, defence, and 2 Turbulence in capital markets
social security

3 Investors may wait and see what the new

administration will do before making investment
On the 25 July 2022, Indonesia formed three new decisions
provinces in Papua. Their establishment was
stipulated under Law Nos. 14, 15 and 16/2022. With The general election would potentially increase
this expansion, Indonesia now has 37 provinces. national consumption. Political activities, which are likely
to increase throughout 2023, would potentially affect
The GoI expects that this decision could potentially household consumption. Household consumption would
help spur growth within these regions, as the process increase due to public tendency to shop and prepare for
that must be followed to gain access to funds from the the elections.
central government has become less bureaucratic.
Political uncertainty is an important factor that could
As of 2021, Central Papua generated the highest affect stock market performance. The stock market
GRDP (IDR 81.7 trillion), with its mining and quarry performance is also influenced by political and government
sector contributing IDR 63 trillion. activities, including the adoption of new economic policies
by recently elected political parties. Investors are likely to
become more risk averse during the political year as
compared to non-political years.
Note: 1) In Bahasa Indonesia, this is referred to as Papua Pegunungan
Sources: Cabinet Secretariat of the Republic of Indonesia (2022); Badan Pusat Statistik (2023); General Election Commissions (Komisi Pemilihan Umum) 16
(2022); Bialkowski, Gottschalk, Wisniewski (2008); Ebeke and Ölçer (2013), PwC Analysis (2023)
 3. Green Economy

First NDC Enhanced NDC

Indonesia’s 2030
emission 29% Unconditional
commitment 31.89% Unconditional
commitment
reduction target 41% conditional commitment 43.2% conditional commitment

In 2022, Indonesia renewed its Nationally Figure 16. Indonesia’s future green development
Determined Contribution (“NDC”) into Enhanced
NDC, whereby it increased its carbon emission
reduction commitment from 29% to 31.89% for its Key drivers of Indonesia’s green
unconditional commitment and 41% to 43.2% for its
conditional commitment, given international support.
economy development
Indonesia has taken several measures in realizing its National Energy Grand Strategy (“GSEN”) to
NDC. For example, it released the Low Carbon
1
replace General National Energy Plan (“RUEN”)
Development Indonesia (“LCDI”) by the National
Development Planning Agency (“Bappenas”) in
October 2017. It is an initiative that aims to preserve 2 Carbon cap-and-tax and carbon cap-and-trade to
economic and social growth through low carbon begin implementation in the power sector
development and minimization of natural resource
exploitation.
3 Pilot Coal-fired Power Plant (“CFPP”) early
LCDI consists of policy recommendations with their retirement
respective indicators and targets for in various sectors.
It can generally be grouped into: 1) Commitment on
forest protection; 2) Commitment on renewable energy; 4 Incentives to replace internal combustion engine
3) Measures for increased land productivity; and 4) (“ICE”) vehicles with electric vehicles (“EVs”)
Energy efficiency and waste production.

5 Hydrogen development in addition to development

Several pilot LCDI projects have been implemented
of other renewables
with stakeholders from the central and local
government and private sectors. One of them is a
project to utilise an ex-mined land as a mangrove
3.1 RUEN and GSEN Progress
tourism park in efforts to rehabilitate ecosystems and
carbon sequestration. It was located in Bangka Island Indonesia has shown a growing trend in renewable
and involved Yayasan Terumbu Karang Indonesia energy usage since 2015. The share of renewable
(“Terangi”) as the implementing partner. This project energy in the national energy mix had increased from
was able to reduce emissions by 220,200 tCO2/year, 4.9% in 2015 to 12.3% in 2022.
and on top of that, members of the forest community
received IDR 2,000,000 per household per month in The GoI developed RUEN in 2017, which set targets for
additional income. the renewable energy share of the national energy mix
for 2015-2050. Under RUEN, Indonesia’s renewable
Indonesia’s more recent milestones include the energy share is targeted to get to 23% by 2025 and 31%
multinational coalition of public and private institutions by 2050.
that have pledged USD 20 billion to support
Indonesia’s energy transition under the umbrella of the However, for all years up to and including 2022,
Just Energy Transition Partnership (“JETP”). Indonesia has been unable to reach its renewable
energy targets (See Figure 17). As of 2022, it was about
Looking ahead, there are several key drivers that are 3.4 percentage points behind its target for the year
pertinent to Indonesia’s green economy development (12.3% instead of 15.7%).
(See Figure 16), which will be explained in the
following sections of this chapter.

Sources: United Nations Framework Convention on Climate Change (2022); BBC Indonesia (2023); Tempo (2023); PwC Analysis (2023), Ministry of
17
Environment and Forestry (2022), Low Carbon Development Indonesia (2023), Ministry of Energy and Mineral Resources (2023)
 3. Green Economy

Figure 17. Targeted and Realised Renewable Energy Figure 18. Illustration of the hybrid cap-and-tax and
Share in National Energy Mix (%) cap-and-trade policy

Cap and Trade Cap and Tax

Carbon
Emission Tax
Deficit Emission
Deficit
Emission
Cap Emission Surplus
Surplus
15.7%

Carbon Carbon
Trade Trade
12.3%*
Entity A Entity B Entity A Entity B

The Minister of Energy and Mineral Resources

(“MoEMR”) have also issued Ministerial Regulation No.
Source: Ministry of Energy and Mineral Resources (2023) 16/2022, which details the provisions of how these
initiatives are to be implemented in the power sector.
During the 2022 G20 Summit, Indonesia announced its This is planned to be broken down into three phases,
commitment to reach Net Zero Emission by 2060 at the with phase one set for 2023-2024, starting with coal-fired
latest. To reflect this new commitment, the GoI has power plants (“CFPP”).
announced the GSEN, which will replace the RUEN.
The GSEN is said to target 100% of renewable energy The regulation also specifies the sectoral carbon cap for
share in the national energy mix by 2060 with 587 the power sector, which is broken down into several
Gigawatt (“GW”) capacity. levels based on size and type of CFPP (See Figure 19).

3.2 Carbon Cap-and-Tax and Cap-and-Trade Figure 19. CFPP Carbon Cap by type and size

Indonesia’s hybrid carbon cap and trade and cap

and tax policy is back on track. Initially, this policy
CFPP Non-MM / MM 25 MW to ≤ 100 MW
was supposed to began implementation in July 2022,
but it was then postponed to 2025 due to global 1.29 tCO2/MWh
uncertainty. However, during the same year, the
Ministry of Environment and Forestry (“MoEF”) issued CFPP MM 25 > 100 MW
Ministerial Regulation No 21/2022 that detailed general
1.09 tCO2/MWh
provisions pertaining to carbon trading, carbon
offsetting, carbon cap, and carbon tax.
CFPP non-MM 100 to ≤ 400 MW
In essence, relevant ministries would develop a 1.09 tCO2/MWh
sectoral carbon cap (i.e. “Persetujuan Teknis Batas
Atas Emisi” - “PTBAE”) that will be used as the CFPP non-MM > 400 MW
baseline of determining the carbon cap for individual
entities (i.e. PTBAE Pelaku Usaha - “PTBAE-PU”). 0.9 tCO2/MWh
To meet the limits set by the carbon cap, entities can
engage in trading carbon allowances with other entities
in the same sector and/or carbon offsetting activities
that are certified by MoEF. Remaining discrepancies In regards to carbon tax, the Harmonisation of Tax
between an entity’s carbon allowances and offset Regulations Law (i.e. “Harmonisasi Peraturan
certifications with the carbon cap would then be Perpajakan” or “the HPP Law”) stated that the
charged with carbon tax (See Figure 18). carbon tax rate will be set equivalent or higher than the
market rate of carbon price, with USD 2 per tCO2
being the price floor. Further details on this matter is
subject to ministerial regulations from the Ministry of
Finance that is still being developed.
Note: * Provisional data for 2022

Sources: National Energy Council (2022), Ministry of Environment and Forestry (2022), Ministry of Energy and Mineral Resources (2022) 18
3. Green Economy

In February 2023, the government officially launched 3.4 EV Industry Development

carbon trading in the power sector. 99 CFPPs are
expected to participate, which represents 33.6 GW The GoI seeks to capitalise on the growing
installed CFPP capacity (86%). Figure 20 provides the popularity of EVs. EV sales are expected to grow
breakdown of the target participants by type and rapidly over the next few years, which is driven by its
installed capacity. growing global popularity. This is expected for both
plug-in electric hybrid vehicles (“PEHVs”) and battery
Figure 20. Potential CFPPs to partake in power electric vehicles (“BEVs”). Within four years, global EV
sector carbon trading in 2023 sales for cars are projected to be 2.5 times greater
than in 2021, which would be equivalent to 140%
growth.
Figure 21. Global EV Sales Projection for Cars
Projected
99
CFPP

3.3 Pilot CFPP Early Retirement Plan

Indonesia will no longer add more CFPPs
beyond 2030. This is part of Indonesia’s broader
The progress towards the integration of EV usage into
efforts to decarbonise its economy. Currently,
Indonesia’s transportation sector can be seen by the
Indonesia has begun exploring opportunities for the
increasing number of EVs among ride-hailing services.
early retirement of its existing CFPPs.
As of July 2022, Grab Indonesia claimed that they
have 8,500 EVs operating in eight Indonesian
MoEMR had listed 33 CFPPs for early retirement
provinces. Gojek Indonesia targeted 5,000 EVs to be
starting in 2030. During the COP 27 conference,
operational in 2022.
PLN, Indonesia’s state-owned energy corporation,
announced this early retirement plan as part of their
The GoI had already developed several policies to
commitments to realise Indonesia’s Net Zero
support the EV purchases. For instance, the GoI is
Emission agenda. As of November 2022, 3 out of
planning to provide IDR 7 million worth of subsidies for
the 33 CFPPs had been identified for the early
EV motorcycle purchases, as well as a 10% tax
retirement list, namely: PLTU Cirebon-1, PLTU
reduction for EV car purchases. These policies are set
Pelabuhan Ratu, PLTU Paiton. All of these three
to be effective starting March 2023.
CFPPs are located in the Java Island.
On the infrastructure end, as of December 2022, PLN
PLN and PT Bukit Asam (“PTBA”) had signed a
had developed 570 EV charging stations (Stasiun
Principle Framework Agreement for PLTU
Pengisian Kendaraan Listrik Umum/ “SPKLU”). 88% of
Pelabuhan Ratu’s early retirement. The plan was to
them are located in Java-Bali island, followed by 5.6%
have PLTU Pelabuhan Ratu acquired by PTBA from
in Sumatra, and the rest spread across other islands.
PLN. Afterwards, the operational period of the PLTU
will be shortened to 15 years, compared to the
Aside from being a demonstration of Indonesia’s
original period of 24 years. However, as per 17
commitment in reducing global carbon emissions,
February 2023, the acquisition of PLTU Pelabuhan
these incentive policies also aim to support demand for
Ratu had not yet occurred, as PTBA was still
Indonesia’s abundant nickel deposit - an integral
undergoing its due diligence for the acquisition.
component for EV batteries, reduce fiscal burdens from
fuel subsidy, and induce EV producers to accelerate
their investment realization in Indonesia.
Sources: PLN (2022), CNBC Indonesia (2023), International Energy Agency (2022), Tempo (2022), IDX Channel (2022), Kompas (2023),
Ministry of Industry (2022) 19
 3. Green Economy

3.5 Hydrogen Potential Globally, oil refineries are the largest users of
hydrogen. The demand for hydrogen in refineries may
Hydrogen has a wide range of applications, from increase as pollutant regulations continue to tighten
refining oil to petrochemicals to steel (e.g., as the permitted amount of sulphur in oil products
manufacturing. Hydrogen in its purest form can be continues to decrease). Global demand for ammonia
used as a raw material for industrial processes. and methanol is expected to grow by up to four times
Hydrogen can also be combined with other inputs to due to their increasing use as fuels and economic
produce hydrogen-based fuels and feedstocks, growth in developing countries (through growing
primarily feedstock for the chemical and refining agriculture demand). As seen in the figure below, the
industries. In the chemical industry, hydrogen is mostly ammonia and methanol sectors together account for
used as feedstock to produce ammonia and methanol, almost half of the demand for hydrogen for the period
while in a refinery, hydrogen is used to process crude from 2019 to 2021.
oil.
Figure 22. Global Hydrogen Demand by Sector
Hydrogen can be a feasible energy alternative for (Million tonnes)
large-scale transportation such as long-distance trucks 91.2 89.5 94.3
and aviation, as opposed to batteries in EVs that are
more suited for small-scale transportation. Hydrogen
can also be used to partially substitute natural gas to
provide heat for industrial processes, including those of
the steel industry. Hydrogen’s use cases in different
industries will continue to evolve.

There are three main ways to generate hydrogen,

represented by the colors gray, blue, and green.

● Grey: The most common process to produce

hydrogen is to use either natural gas or coal as
feedstock that reacts with steam at high Source: IEA (2019-2021), Global hydrogen demand by sector in the Net
temperatures and pressures to produce synthesis Zero Scenario, 2019-2030
gas, which consists primarily of hydrogen and PLN and Mitsubishi Heavy Industries (“MHI”) has
carbon monoxide signed a Memorandum of Understanding (“MoU”)
● Blue: The second-most-common process, blue in November 2022 to begin three feasibility studies
hydrogen, relies on the same basic processes as on co-firing power plants.1 The first feasibility study
gray hydrogen, but it traps up to 90% of the is a technical and economic assessment of co-firing
greenhouse gas emissions through carbon-capture power plant with 100% biomass at Suralaya CFPP unit
technology. 1-4 in Cilegon, Banten. Stages from the biomass
● Green: green hydrogen, uses renewable energy to supply chain, handling, storage, transport and boiler
power the electrolysis that splits water molecules modification will be assessed in the study.
into hydrogen and oxygen. Electrolysis requires
energy, which would come from lower-cost The second feasibility study will assess co-firing power
renewable sources to make this form of hydrogen plant with ammonia and take place at Suralaya CFPP
“green.” unit 5-7. It will assess the potential of blue ammonia
supply chain in production and transportation from the
Advances in electrolysis technology and the falling cost ammonia plant, along with the co-firing technology
of renewable energy are enabling the mass production application.
of green hydrogen globally.
The third feasibility study will assess hydrogen co-firing
power plant in an M701F gas turbine managed by PT
PLN Indonesia Power. It is located in Tanjung Priok
gas turbine combined cycle (“GTCC”) facility in
Jakarta.

Note: 1) Co-firing refers to the incorporation of a second material to partially substitute for coal during the combustion process of energy
production. The reduction of coal usage in the co-firing power plants can reduce the GHG emitted, as compared to coal-firing power plants.
Sources: International Energy Agency (2022), Institute for Essential Services Reform (2022), Mitsubishi Heavy Industries (2022), Ministry of
20
Energy and Mineral Resources (2022), Tempo (2022)
4. Gross Domestic Product

Economic recovery and growth were gaining traction throughout 2022, supported
by strong export, investment and household spending growth. However,
downside risks such as weak global demand, capital outflow, currency pressures
and tight global financial conditions could potentially hinder growth momentum
over the next four years.

4.1. Indonesia’s Economic Growth

Amid global uncertainty, the Indonesian economy continued to grow above a 5% rate
throughout 2022. The Indonesian economy has expanded in 2022, after two years of fluctuations
due to the pandemic and supply chain disruption. Real GDP growth has recovered from 3.7% in 2021
to 5.3% in 2022. The growth in 2022 has recovered to the pre-pandemic level of 5%.

Figure 23. Indonesia’s Historical Real GDP Growth (%YoY)1

[+] Vaccine and Russia
COVID-19 Started economy invaded
reopening Ukraine
[-] Global Net export contributed
supply chain
and labour Real GDP
4.3%
market
Growth to national GDP in Q4
disruptions
5.3% 2022, in nominal terms2

Net exports grew by

+72%
in nominal terms from
Q4 2021 to Q4 20222

Source: PwC Global Economy Watch (2023)

In nominal terms, Indonesia’s GDP is still The economic expansion in 2022 was supported by
dominated by private consumption. The share has strong export, investment and household spending
remained consistent throughout the last 12 years. growth. In nominal terms, private consumption,
Private consumption, government spending, government spending, investment, and net exports
investment and net exports contributed 56.4%, 8.2%, have grown by 10.0%, -3.3%, 9.1% and 53.6%,
31.6% and 3.8% of total GDP, respectively, in nominal respectively, in 2022. Net exports contributed the most
terms in 2022. to economic growth in 2022. The sudden increase in
commodity prices that resulted from the Ukraine war
Figure 24. Breakdown of Indonesia’s Nominal GDP has increased the value of Indonesia’s palm oil and
Components (trillion Rupiah)2 coal exports, thereby strengthening the country’s
IDR 19,588* trillion3
/ USD 1,245 billion4 current account balance. In addition, the drop in
COVID-19 cases and successful vaccination
programme throughout 2022 have lifted the mobility
restrictions in Indonesia. As a result, household
consumption steadily increased throughout 2022.
Notes: 1) Real GDP is seasonally adjusted., 2) Household expenditure and
expenditure of non-profit organisations serving households are combined to
become the private consumption component, while gross fixed capital
formation and inventory changes are combined to become the investment
component, 3) Total GDP value included the statistical discrepancy between
GDP value by expenditure approach and by income approach, 4) Conversion
to USD uses the Bank Indonesia middle exchange rate listed on 30 December,
2022 of IDR 15,731/USD.

Source: Badan Pusat Statistik (2023)

21
4. Gross Domestic Product

4.2 Gross Regional Domestic Product (“GRDP”) Figure 25. Regional Real GDP Contribution vs Regional
Real GDP YoY Growth in Q4 2022 (%)
Disparity between regions remains a concern to
address. Java Island contributed the most to the
Indonesian economy; The total GDP combined for
all Javanese provinces accounted for 57% of
national GDP in 2022. At the provincial level,
Jakarta remained the largest contributor to the
Indonesian economy; it accounted for 17% of
national GDP in 2022, followed by East Java (14%),
and West Java (13%). Meanwhile, North Maluku
grew the most, with a yearly growth of 50% in 2022,
reflecting the significant impact of the rebound from
the pandemic.

Source: Badan Pusat Statistik (2023)

Labels: AC = Aceh, SU = North Sumatera, SB = West Sumatera, RI = Riau, JA = Jambi, SS = South Sumatera, BE = Bengkulu, LA = Lampung, BB = Bangka Belitung Island, KR = Riau Island,
JK = DKI Jakarta, JB = West Java, JT = Central Java, YO = Yogyakarta, JI = East Java, BT = Banten, BA = Bali, NB = West Nusa Tenggara, NT = East Nusa Tenggara, KB = West Kalimantan,
KT = Central Kalimantan, KS = South Kalimantan, KI = East Kalimantan, KU = North Kalimantan, SA = North Sulawesi, ST = Central Sulawesi, SN = South Sulawesi, SG = Southeast Sulawesi,
GO = Gorontalo, SR = West Sulawesi , MA = Maluku, MU = North Maluku, PA = West Papua, PB = Papua

Figure 26. Sectoral Real GDP Contribution vs Sectoral Real

4.3 Sectoral GDP GDP YoY Growth in Q4 2022 (%)

All leading sectors, including manufacturing,

mining, agriculture, and retail and construction,
continued their recovery trend. All sectors grew
except for health services, which contracted after
the pandemic.The business fields with the highest
growth in Q4 2022 were transportation,
warehousing, accommodation, and food and
beverages. The growth of these fields was driven by
increasing mobility and visits by foreign tourists.
Key constraints to accelerated growth in these
sectors in 2023 include a potentially slow recovery
in China of demand for international travel and high
airfare costs for long-distance travel.
Source: Badan Pusat Statistik (2023)
Labels: AF = Accommodation and Foods & Beverages (“F&Bs”), AFF = Agriculture, Forestry and Fisheries, BA = Business Activities, CO = Construction, ES = Education Services, EG =
Electricity and Gas, FI = Finance and Insurance, HS = Health Services, IC = Information and Communication, MA = Manufacturing, MI = Mining, OSA = Other Services Activities, PA = Public
Administration, RE = Real Estate, TS = Transportation and Storage, WW = Water and Waste, WRT = Wholesale and Retail Trade

4.4 Short-term growth outlook

Economic growth in 2023 is projected to decline compared to 2022 as

Indonesia’s
inflationary pressure is expected to persist. The Indonesian economy is short-term
projected to experience lower growth - from 5.3% in 2022 to 4.8% in 2023. High growth
inflation expectation and aggressive monetary policy tightening, both of which are
expected in 2023, would potentially reduce household consumption and erode projection
businesses profitability in 2023. Slowing export growth could potentially arise from
slowing global growth, but Indonesia’s core commodity exports (i.e. coal, palm oil,
and nickel products) would remain in strong demand as long as the Ukraine war 2023f: 4.8%
drags on. The Indonesian economy is also projected to grow at a 5.1% rate from 2024f: 5.1%
2024 and onwards. Downside risks such as weak global demand, capital outflow,
currency pressures and tight global financial conditions could potentially hinder
2025-2027f: 5.1%
growth momentum from 2025 onwards.
Source: PwC Global Economy Watch (2022). 22
5. Monetary and Financial System

Inflation remained low throughout the pandemic. However, the increases in

subsidised petrol and global commodity prices pushed annual inflation up in Q3
2022. Inflation has since cooled down as Bank Indonesia has been switching to a
more aggressive monetary policy stance.

5.1 Inflation

Inflation picked up significantly in 2022 after a relatively modest rate in 2020 and 2021. The
strong increases in price levels in 2022 were caused by surges in global food and energy prices,
post-pandemic growth in domestic consumption and increases in domestic subsidised fuel prices.
Indonesia’s consumer price index peaked at 6% in September 2022. The administered1 price
component of inflation contributed the most to the price increase, with an estimated increase of
13.3% between Q4 2021 and Q4 2022. Inflation cooled down in Q4 2022 following Bank Indonesia’s
aggressive monetary policy stance and the slowdown in food inflation. However, inflation remained
elevated at 4.4% at the end of 2022; Bank Indonesia failed to meet its target of 2-4%.

Figure 27. Indonesia’s Consumer Price Index (“CPI”) Growth (%YoY) vs BI Seven Days Repo Rate
(“BI7DRR”)

Price Q4 2020 - Q4 2021 -

Component Q4 2021 Q4 2022

Core +1.56 +3.4%

4.4%
Volatile Food +3.20% +5.6%

Administered +1.79% +13.3%

Sources: Badan Pusat Statistik (2022), Bank Indonesia (2022)

Bank Indonesia has been switching to a more front-loaded and aggressive

policy stance. While many central banks around the world, including the Fed, Indonesia’s
switched to an aggressive monetary policy stance at the beginning of 2022, Bank
Indonesia refrained from raising the policy interest rate until August 2022. Bank
short-term
Indonesia initially raised the reserve-requirement ratio (“RRR”) for commercial banks inflation
in the first half of 2022, but eventually increased its policy rate by 25 basis points in projection
September to cope with the inflationary pressure.

Inflation is expected to hold at the upper limit of Bank Indonesia’s target of

2-4% in 2023. Inflation is projected to remain elevated in 2023 at 4.0%, irrespective 2023f: 4.0%
of Bank Indonesia’s stance on interest rates. The uncertainty caused by the Ukraine 2024f: 3.2%
war could make fuel prices unpredictable in 2023 and keep inflation higher for 2025-2027f: 3.6%
longer.

Note: 1) Administered price component refers to goods which prices are 23

controlled by the government.
5. Monetary and Financial System

5.2 Consumer Confidence

Consumer confidence in Indonesia has remained stable despite rising inflation. The Consumer
Confidence Index (“CCI”) has followed a relatively stable trend with a compound annual growth rate
(“CAGR”) of 0.02% throughout 2022, in contrast to the spike in inflation in 2022 and the rate of 4.4% seen at
the year end.

Furthermore, consumer confidence remained optimistic in 2022 with a CCI value of more than 100 each
month and a value of 120 at the year end. This was a turning point from the peak period of Delta-variant
COVID-19 cases in July and August 2021 in Indonesia, which caused the CCI to fall under 100, which could
be read as pessimistic. The optimism in 2022 may have arisen from the relaxation of restrictions related to
COVID-19 as the pandemic became more controllable.

Figure 28. Consumer Confidence Index vs Inflation (%)

[+] Vaccine and economy
COVID-19 started reopening Russia invaded
[-] Global supply chain and Ukraine
labour market disruptions 120

4.4%

Sources: Bank Indonesia (2023), PwC Global Economy Watch (2023)

The stability in CCI. This stability could partially be attributed to the introduction of the BI Seven Day Repo
Rate by Bank Indonesia, in 2016, which replaced the more conventional BI Rate. This monetary
transmission mechanism can affect money supply within one week, rather than a year as previously. BI has
also proactively managed inflation fluctuations by establishing inflation control task forces, both at the
national and regional levels, that act based on four pillars. Each task force has the authority to initiate
intervention measures based on each region’s inflation drivers. The four pillars for inflation control taskforce
are as follows:

1) Price affordability: Ensuring price stability on both producer and consumer levels, lowering
exchange rate volatility, and demand diversification.
2) Supply availability: Empowering domestic producers (especially food), ensuring export and import
flexibility, as well as reinforcing institutions.
3) Smoothness of distribution: Encouraging interregional trade cooperation and improving trade
infrastructures that improves direct and virtual connectivity.
4) Effective communication: Repairing data quality and strengthening central and regional
coordination.

24
5. Monetary and Financial System

5.3 Inflation Components

The consumer price increase in transportation has surpassed that of primary needs components.
This is shown by the 15.3% YoY growth of the Consumer Price Index (“CPI”) for transportation in December
2022, as compared to those for; 1) Food, Beverages, Tobacco, 2) Clothing and Footwear, and 3) Housing,
Water, Electricity and Home Fuel with 5.8%, 1,4% and 3.8% YoY increase respectively.

The relatively high growth in CPI for transportation was driven by the 19.1% CPI increase in its
subcomponent of ‘Operation of Personal Transport Equipment’. This was influenced by the hikes in
Indonesia’s fuel prices as the government reduced some of the subsidies in September 2022, causing the
subsidised fuel price to increase by 30.7%1. This policy was taken as a response to the surge in global
energy prices during the first half of 2022.

Figure 39. Consumer Price Index Component Growth in December 2022 (%YoY)

Driven by the 19.1% increase in ‘Operation of Personal

Transport Equipment’ sub-component

Driven by the 3.01% decrease in ‘Financial

Services’ sub-component

Sources: Badan Pusat Statistik Indonesia (2023)

Notes: [1] The price of Pertamax 92, Pertalite and Solar (subsidised fuels) increased from Rp.12,500/litre to Rp.14,500/litre, from
Rp.7,650/litre to Rp.10,000/litre and from Rp.5,150/litre to Rp.6,800/litre on 3 September 2022, respectively (Pertamina, 2022). 25
5. Monetary and Financial System

5.4 Loans and Credits

The steady growth of Indonesia’s commercial bank loans was hampered by the pandemic.
Despite Bank Indonesia’s accomodative monetary policy, bank lending activity shrank in 2020 amid
the growing uncertainty during the pandemic, which reduced demand for both household and
businesses loans. Bank Indonesia and the Financial Service Authority (Otoritas Jasa
Keuangan/”OJK”) intervened in 2020 by giving a stimulus and relaxation on credit (e.g. giving
borrower a chance to restructure and/or delay payment). The number of loans has recovered
post-pandemic, despite the slow start in 2021.

The number of total loans to households and businesses had increased as of September 2022.
Total loans from commercial banks increased by 11% from September 2021 to 2022, reflecting the
recovery in consumer confidence in 2022. Household and business loans increased by 9% and 11%,
respectively, indicating restored consumption and investment activities in 2022.

Figure 30. Commercial Bank Loans by Segment (IDR trillion, %YoY)

Figure 31. Indonesia’s Gross Non-Performing Loans

In the midst of the COVID-19
(“NPL”) Value (trillion IDR)
pandemic, the OJK provided a
loan restructuring programme for
businesses. Although the
programme provided relief for
borrowers, non-performing loans
IDR 174 tn remained high and continued to
grow during the year following the
implementation of the programme.
The OJK extended its credit
restructuring period to March 2024
due to the persistently high
non-performing loan figure.
Non-performing loans had become
more manageable by September
2022, as indicated by the decline in
the figure.

Sources: The Financial Services Authority (Otoritas Jasa Keuangan/’”OJK”), Banking Statistics Sep 2016-Sep 2022
26
Notes: 1) Multipurpose loans are credits granted to individuals for various personal purposes (consumptiom) which are covered by sufficient collateral.
5. Monetary and Financial System

5.5 Exchange Rate

The Rupiah depreciated against the US Dollar following the announcement of the first case of
COVID-19 in Indonesia, reaching 15,884 USD/IDR in March 2020. At the end of 2020 and
throughout 2021, the Rupiah stabilised with the easing of global financial conditions and with support
from Bank Indonesia’s bonds issuance programme. However, the Ukraine war and ensuing political
uncertainty have again triggered the depreciation of the Rupiah as investors have become
increasingly risk-averse.

Figure 32. Rupiah Fluctuation Against US Dollar (USD/IDR)

[+] Vaccine and USD to IDR

economy reopening (end months)
COVID-19 Russia
[-] Global supply
started
chain and labour invaded IDR 15,608
market disruptions Ukraine

Sources: Badan Pusat Statistik (2023), PwC Global Economy Watch (2023).

The Rupiah began to stabilise against the US Dollar in Q4 2022. In response to improved investor
risk sentiment, the pace of the Rupiah’s depreciation slowed as of late 2022. The Rupiah has
stabilised in the past month, supported by improvements in investors’ risk appetites around the world.
The rupiah is projected to depreciate in early 2023, conditional on the gradual recovery of the
Chinese economy and the stabilisation of global conditions, but the magnitude of the global shock
may keep investors away until late 2023 or later.

The volatility of financial markets, caused by the growing risk of a deeper global recession, could
potentially trigger capital outflows from Indonesia and drive a sharp depreciation of the Rupiah in the
long term. These risks include significant monetary policy tightening by major central banks that Bank
Indonesia would be unable to match, which would further depress investors’ confidence. In either
case, Bank Indonesia would have limited room for monetary policy maneuvering to curb inflation.

27
5. Monetary and Financial System

5.6 Unemployment

Prior to the spread of COVID-19 in February 2020, Indonesia’s unemployment rate1 had been declining – the national
unemployment rate declined from 6.2% in 2015 to 5.2% in 2019. The unemployment rate then steeply increased to
7.0% in 2020, following the large number of jobs that were lost during the early phase of the pandemic.

The Indonesian labour market began to

recover from the pandemic throughout 2021
Figure 33. Indonesia’s Unemployment Rate by Gender (%) and 2022. The unemployment rate peaked in
2020 and has been declining ever since. The
unemployment rate decreased to 5.9% in 2022
and has not been adversely affected by the
Ukraine war. However, the unemployment rate
has yet to return to the pre-pandemic level
despite the sharp recovery.
Men
5.86% The increase in unemployment during the
Overall pandemic was more pronounced for male
5.93%
workers. During the pandemic, the
Women
5.75% unemployment rate surged to 7.4% and 6.4% for
men and women, respectively. The rate for each
gender has since declined following the overall
unemployment trend.

Although workers of all education levels faced

Source: Survei Angkatan Kerja Nasional/”Sakernas” (2022) unemployment during 2020, the impacts of the
pandemic were greater on the less educated,
Figure 34. Indonesia’s Unemployment Rate by with the increase in unemployment being the
Education Level (%) most pronounced for vocational high school
graduates. Workers with lower levels of education
are more often employed in labour-intensive
sectors such as manufacturing and construction,
where many workers had to stop working during
the pandemic due to social restrictions.
Vocational
High School
9.42% The effect of a prolonged shock to the labour
market could extend into the long term for
High School unemployed workers. Although the pandemic
8.57%
was initially considered a temporary shock,
Middle School
5.95% experts have begun to assess the permanent
University economic damage (scarring) from this crisis.
4.80%
Workers who have been unemployed for a long
Diploma 4.59 %
time with skills obtained prior to the pandemic
may find themselves no longer relevant in the
labour market. Alternatively, their skillset may
Source: Survei Angkatan Kerja Nasional/”Sakernas” (2022) remain relevant but their abilities may have
eroded over time. In either case, the chance of
the worker securing employment in the future
would be reduced.

While the unemployment rate came down quickly over the last two years, the rate will potentially tick up in
2023. With economic growth expected to decline from 5.3% in 2022 to 4.8% in 2023, the labour market is expected to
tighten, thereby potentially increasing the unemployment rate.
Notes: 1) Unemployment is a situation where a person is actively looking for a job but is unable to find work. The unemployment rate is estimated
by determining the share of the labour force that is unemployed as a percentage of the total number of people in the labour force. 28
6. Trade

Indonesia has revived its international trade activities while strengthening trade
partnerships with other economies. Such measures are expected to provide a
cushion against economic uncertainty in 2023.

6.1 Indonesia’s International Trade Balance

Indonesia’s trade balance was at its peak in 2022 after the trade deficit in 2019. Indonesia has
returned to being a net exporter since 2020 and posted a trade surplus of USD 54.5 billion in 2022,
standing as the highest trade surplus achieved for several years. It experienced a 41.6% YoY net
export or trade surplus growth in Q4 2022. Furthermore, Indonesia had greater total trade value in
2022 as its total trade (export and import) value surpassed the pre-pandemic value; there was a
56.2% increase in nominal value in 2022 from the 2019 level. Indonesia’s Ministry of Trade projected
a trade surplus of USD 38.3 to 38.5 billion in 2023, which represents a 29.4% to 29.7% decrease to
the 2022 trade surplus.

The projected slowdown in trade growth is likely to be induced by the global economic uncertainty
and weaker demand expected in 2023. The United States (“US”) was Indonesia’s second-largest
export market in 2022. Given the low economic growth projection of the US in 2023, Indonesia’s
international trade may potentially be impacted through lower net exports to the US.

Figure 35. Indonesia Trade Value (USD billion)

14.6

Source: Badan Pusat Statistik Indonesia (2023)

Figure 36. Indonesia Top 5 Trade Partners (2022)

Export
China USA Japan India Malaysia
$65.92B $28.20B $24.85B $23.38B $15.45B
(22.6%) (9.7%) (8.5%) (8.0%) (5.3%)

Import
China Singapore Japan Malaysia South Korea
$67.72B $19.41B $17.18B $12.48B $11.72B
(28.5%) (8.2%) (7.2%) (5.3%) (4.9%)

Source: Ministry of Trade (2023), PwC Analysis (2023).

29
6. Trade

6.2 International Trade Partnership

Indonesia is strengthening its trade partnerships with multiple economies. Among many trade
agreements, the Regional Comprehensive Economic Partnership (“RCEP”) has been one of the most
highly anticipated agreements. It officially entered into force in Indonesia on 2 January 2023.

RCEP is expected to strengthen the trade partnership between Association of Southeast Asian
Nations (“ASEAN”) members, China, South Korea, Japan, Australia and New Zealand. The
agreement has several aspects such as tariff elimination for goods, preferential market access for
certain goods, simplified customs procedures, and many others. As per 20 December 2022,
Indonesia was participating in the following trade agreements, discussions and explorations:

Figure 37. Indonesia’s Existing and Potential Trade Partnerships

Agreements that have either been signed, ratified, or implemented are as follows:
27 ● Japan ● Preferential Trade Agreement
Trade ● Pakistan Developing Eight (“PTA D8”)
Agreements ● Palestine ● Trade Preferential System among
● Chile (Trade in Goods) Organisation of Islamic
● Australia Cooperation Member States
● European Free Trade (“TPS OIC”)
Association (“EFTA”) ● ASEAN Scope
● Mozambique ● Trade Facilitation Agreement
● Korea (“TFA”)
● United Arab Emirates ● Indonesia Fisheries Subsidy
● RCEP

Agreements that are currently under discussion are as follows:

17 ●
●
European Union
Chile (Trade in Services)
●
●
Tunisia
Mauritius
Trade ● Turkey ● Morocco
Discussions ● Pakistan (Trade In Goods ● Canada
Agreement/“TIGA”) ● Mercado Común del Sur
● Bangladesh (“MERCOSUR”)
● Iran

Agreements that are currently being explored are as follows:

18 ● Southern African Customs Union

(“SACU”)
● Colombia
● United States (Limited Trade
Trade ● Economic Community of West Deal/”LTD”)
Explorations African States (‘ECOWAS”) ● Papua New Guinea
● East African Community (“EAS”) ● Eurasian Economic Union
● Djibouti (“EAEU”)
● Algeria ● Ukraine
● Gulf Cooperation Council (“GCC”) ● India
● Sri Lanka ● Afghanistan
● Peru ● ASEAN-EU
● Ecuador
● Fiji

Sources: Ministry of Trade (2022), ASEAN (2023)

30
6. Trade

6.3 Indonesia’s Regional Trade1

The provinces with the top spending and selling
Indonesia’s domestic regional trade transaction
values for regional trade in 2021 were
value in 2021 did not return to its pre-COVID value
predominantly Java provinces. DKI Jakarta was the
from 2019. There was a declining trend in the total
province with both the highest spending and selling
transaction value for regional trade in the period from
values; they accounted for 18.6% and 23.0% of the
2019 to 2021 due to the 16.7% CAGR contraction. The
total regional trade transaction value, respectively.
total transaction value in 2021 amounted to IDR 1,130
trillion, equivalent to 69.4% of the value in 2019.
Among the top three provinces with the top spending
and selling values in 2021, East Kalimantan was the
The data for regional trade transaction value in 2022
only non-Java province. Its selling value accounted for
was not yet available as of the date of this report.
18.7% of the total national trade transaction value. Its
However, given that private spending in real value
largest commodity sold in terms of value was coal
reached its highest level at IDR 1,550 trillion in Q2
(non-agglomerated). It was also the province with the
2022 and decreased only slightly to IDR 1,545 trillion in
highest regional trade surplus value in 2021; this
Q3 2022, it may be possible to see an increasing trend
surplus was valued at IDR 187.46 trillion.
in total transaction value for regional trade in 2022.
The IKN located in East Kalimantan is currently under
Figure 38.Total Transaction Value in Regional Trade
development and is expected to welcome its first
(IDR Trillion)
citizens in 2024. The city might have the potential to
induce more inter-regional trade activities in East
Kalimantan in the future, especially on the spending
side.

Figure 40. Top 3 Spending and Selling Provinces in

Regional Trade in 2021

Spending
DKI Jakarta Central Java East Java
Source: Badan Pusat Statistik Indonesia (2023)
210.22 Trillion 148.21 Trillion 134.54 Trillion
Rupiah Rupiah Rupiah
The top five trade commodities in terms of regional (18.6%) (13.1%) (11.9%)
trade value in 2021 were coal (non-agglomerated),
Selling
cars and vehicles, oil fuel, crude palm oil, and
cigarettes and tobacco, which together accounted for DKI Jakarta East Kalimantan West Java
260.17 Trillion 211.14 Trillion 136.35 Trillion
37.5% of the total national transaction value in 2021. Rupiah Rupiah Rupiah
The transaction value for coal (non-agglomerated) (23.0%) (18.7%) (12.1%)
alone amounted to IDR 227.24 trillion, equivalent to
20.1% of the total regional trade transaction value in
The majority of regional trade in 2021 was
2021.
distributed via land transportation. This is supported
by data showing that DKI Jakarta, as the top selling
Figure 39.Top 5 Regional Trade Commodities in
province in 2021, made its biggest sales to West Java,
Value for 2021
Central Java, and East Java, which are all accessible
1 Coal by land transportation.

Cars & vehicles, for Figure 41. Regional Trade Transportation Modes in
2 passengers 2021
3 Oil fuel
Account for
4 Crude palm oil 37.5% 77.56% 18.88% 3.56%
Land Water Air
Regional Trade Transport Transport Transport
5 Cigarettes, tobacco

Source: Badan Pusat Statistik Indonesia (2022), PwC Analysis (2023). 31

Note: 1) region is defined as either municipalities or regencies in Indonesia.
This section refers to domestic regional trade / “Perdagangan Antar Wilayah”.
7. Investment

Indonesia’s foreign and domestic investments reached their all-time high in 2022. The Job
Creation Law, which harmonises government policies from the regional to central levels,
might have improved the attractiveness of investing in Indonesia. Sustainable investment,
which seeks to balance financial returns with Environmental, Social, and Governance
(“ESG”) factors, will be the key area to focus on over the next ten years.
7.1 Foreign Direct Investment (“FDI”)
This increasing trend may potentially be emphasised by the
FDI flow in Indonesia reached its highest level in export ban of nickel ore that has been enforced since
Q4 2022, which was mainly investment into January 2020 as part of the GoI’s attempts to drive
downstream industry development in the mining and investment to the downstream domestic nickel industry.
petrochemical sectors. FDI has been increasing
sharply since Q4 2021 and reached its peak in Q4 Indonesia received the highest FDI flow from
2022 at USD 12.2 billion with a 45.8% YoY growth rate. Singapore. This flow totalled USD 13.3 billion, equivalent
The Job Creation Law was signed in 2020 with to 29.1% of Indonesia’s total FDI value in 2022. Singapore
implementing regulations made in 2021. The has regularly been among the top FDI sources in Indonesia
implementation period was the same period as the over the past years. Singapore and Indonesia signed an
sharp increase in FDI. MoU on energy cooperation and an MoU on bilateral
partnership on green and circular economy development in
The Job Creation Law was developed with the January 2022. These agreements were expected to
objective of attracting investment and thus may have strengthen their partnership in infrastructure financing for
potentially contributed to the FDI increase. However, low-carbon energy and electricity trading. Globally,
given the law’s relatively recent implementation, sustainable investment has been a highlight and shows
investors might still be in the transition phase. Hence, positive prospects, as seen by the 165% annual growth of
the optimum outcome in investment may not be international project finance deals (in terms of value) for
reflected yet; such an outcome will only be seen when renewable energy in developing economies in 2021.
investors have fully adjusted to the new regulation.
Figure 42. Indonesia Foreign Direct Investment Flow Figure 44. Top 5 FDI Sources in Indonesia (2022)
(USD billion) FDI
Singapore China Hongkong Japan Malaysia
$13.28B $8.23B $5.51B $3.56B $3.34B
(29.1%) (18.0%) (12.1%) (7.8%) (7.3%)

Central Sulawesi received the highest FDI value in 2022 at

USD 7.49 billion, equivalent to 16.4% of Indonesia’s total
FDI value. This was primarily driven by strong investment
to Base Metals and Metal Goods smelters in Central
Sulawesi.

Figure 45. Top 5 Provinces as FDI Receivers in

Source: Ministry of Investment (2023)
Indonesia (2022)
In 2022, the Base Metals and Metal Goods Industry FDI
was the top FDI sector in terms of value, with 24% of
Central North DKI
total FDI value. This finding further continues the trend West Java Banten
Sulawesi Maluku Jakarta
$6.53B $3.41B
of manufacturing as Indonesia’s pioneering sector for $7.49B (14.3%)
$4.49B $3.74B (7.5%)
foreign investment. (16.4%) (9.8%) (8.2%)

Figure 43. Top FDI Sectors by Value in Indonesia and Their Value Contributions (2022)
1 Base Metals and Metal Goods Industry, excluding Machinery and Equipment 24.0%
2 Mining 11.3%
3 Chemical and Pharmaceutical Industry 9.9%
4 Transportation, Warehousing and Telecommunications 9.0%
5 Electricity, Gas and Water 8.3% 32
Source: Ministry of Investment (2023), PwC Analysis (2023), Straits Times (2022)
7. Investment

7.2 Domestic Direct Investment (“DDI”)

DDI remained relatively stable throughout 2022 The mobility restrictions meant that many people
compared to the years before. The trend of DDI resorted to online interactions, both for work and social
reached a plateau in 2022 following its steady increase purposes. Despite the easing of mobility restrictions,
in 2021. It reached its peak in 2022 Q4 at IDR 139.6 reliance on technology and telecommunications was
trillion with a 17.0% YoY growth rate. still strong in Indonesia in 2022. Several businesses
adopted flexible working arrangements for their
As was the case with FDI, the Job Creation Law may employees in 2022, allowing them to work from
have potentially contributed to the increase throughout anywhere with proper technology and
2021 and 2022. The Job Creation Law was developed telecommunications support. The flexible working
to attract both foreign and domestic investment by arrangements are likely to continue after the pandemic
easing business licensing procedures, relaxing ends.
investment restrictions and empowering micro, small
and medium enterprises (“MSMEs”), and eased a In addition, the transportation sector improved in 2022,
backlog in licensing applications, among many other especially for air transport passengers. This was driven
initiatives. by increased mobility in 2022 as travelling restrictions
Figure 46. Indonesia Domestic Direct Investment Flow in many destination areas were relaxed, both
(IDR trillion) internationally and domestically.

DKI Jakarta was the province with the highest value of

DDI received in 2022 at IDR 89.2 trillion, which was
equivalent to 16.1% of total DDI value. The
construction sector had the highest DDI value in
Jakarta; it was equivalent to 21% of DKI Jakarta’s total
DDI in 2022. This position is expected to be maintained
in the near future as DKI Jakarta will remain
Indonesia’s central commercial and business hub even
after the capital city moves to IKN.

Figure 48. Top 5 Provinces as DDI Receivers in

Source: Ministry of Investment (2023) Indonesia (2022)
DDI
Transportation, Warehousing and Telecommunications East
was the sector that received the highest value of DDI DKI Jakarta West Java East Java Riau
Kalimantan
Rp. 89.2T Rp. 80.8T Rp. 65.4T Rp. 43.1T
flow in 2022 at IDR 75.1 trillion, which was equivalent (16.1%) (14.6%) (11.8%) (7.8%)
Rp. 39.6T
(7.2%)
to 13.6% of the total DDI flow value in 2022. When
Indonesia was under the national and regional physical
mobility restrictions as part of attempts to control the
COVID-19 pandemic, the telecommunications sector
became one of the most thriving sectors.
Figure 47. Top DDI Sectors by Value in Indonesia and Their Value Contributions (2022)

1 Transportation, Warehousing and Telecommunications 13.6%

2 Residential, Industrial and Office Areas 12.0%

3 Mining 11.3%
4 Food Industry 9.9%

5 Food Crops, Plantation and Livestock 7.0%

Source: Ministry of Investment (2023), PwC Analysis (2023).

33
8. Government

The Government of Indonesia’s current priority is to maintain purchasing power

through smart subsidies and concurrently keep its budget deficits below 3% of
GDP. It seeks to do this primarily by increasing tax and non-tax revenue and
improving spending efficiency.

8.1 Indonesia’s tax-to-GDP ratio still underperforms compared to

its ASEAN-5 peers
Government revenue
Figure 49. Government Revenue, 2019-2023, IDR trillion1 (realised), 2022, IDR trillion

Income Tax VAT

IDR 998 tn IDR 688 tn
(38.01%) (26.18%)

Excise Customs
IDR 227 tn IDR 91 tn
(8.64%) (3.46%)

Natural Public
resources services
Over the past decade, Indonesia has consistently had the lowest IDR 269 tn IDR 83 tn
tax-to-GDP ratio among its ASEAN-5 peers (Singapore, Malaysia,
Thailand and the Philippines). Indonesia’s tax-to-GDP ratio fell from (10.23%) (3.15%)
9.8% in 2019 to 8.3% in 2020. However, in 2022 it was able to rise
above pre-pandemic levels to 10.4%.

The GoI was able to collect IDR 1,717 trillion in 2022, the highest revenue in the last four years.
Income taxes (38%) and VAT (26%) make up the majority of this achievement, followed by non-tax
revenue from natural resources (10.2%) and excise (8.7%).

The Harmonisation of Tax Regulations Law introduced new revenue potential for the
government. For example, the adjustment of VAT rate from 10% to 11% that has been effective
since April 2022. This has facilitated a 13.7% growth between 2021-2022 on top of the commodity
price hikes and Indonesia’s economic recovery during that time.

Another noteworthy achievement is that as of 30 June 2022, the voluntary disclosure programme (i.e.
Tax Amnesty Volume II) was able to rack up IDR 61 trillion in taxes from the disclosure of IDR 595
trillion worth of net wealth. Through the recently introduced tax on transactions in the digital
economy, the GoI was also able to collect IDR 10 trillion from trade through electronic services and
IDR 246 billion and IDR 210 billion from crypto transactions and fintech and peer-to-peer lending
transactions, respectively.

Sources: Ministry of Finance (2022), World Bank (accessed 2023), PwC Analysis (2023).
Notes: [1] The 2019-2022 figures are based on realised revenue, whereas the 2023 figure is based on the planned budget.
34
 8. Government

8.2 The Government can leverage 2022’s excess budget deficit financing (“Sisa Lebih Perhitungan
Anggaran” - SiLPA) to support 2023’s deficit spending

Indonesia’s budget deficit has returned Figure 50. Budget Deficit and Deficit-to-GDP Ratio, 2019-2023
to below 3%. To support pandemic (IDR trillion)1
recovery efforts, Indonesia’s budget deficit
-to-GDP ratio widened from 2.2% in 2019 to
6.14% in 2020 (See Figure 44), above the
3% threshold as determined under Law No
17 2003. Since then, Indonesia has been
able to lower it to 4.57% in 2021, and
subsequently 2.38%. For the 2023 state
budget, the government has set the budget
deficit at IDR 598.2 trillion or 2.84% of the
GDP based on the Ministry of Finance’s
assumption that the economy would grow
by 5.3% in 2023.

Figure 51. Deficit Financing, Budget Deficit, and Excess 2022’s excess budget deficit financing
Budget Deficit Financing, 2019-2023 (IDR trillion)1 (“Sisa Lebih Perhitungan Anggaran” -
SiLPA) could support the government in
weathering the uncertainties of 2023.
The budget deficit in 2022 was lower than
anticipated, which was supported by the
recovery of government revenue and the
optimization of deficit financing. As a result,
Indonesia’s SiLPA for that year was
recorded at IDR 119.21 trillion. For 2023,
Indonesia is planning to issue IDR 598.2
trillion of government debt, IDR 176 trillion
of which will be used for investing in
Trans-Sumatra Toll Road, endowment
funds for Islamic boarding schools, and
disaster pooling funds (See Figure 46)
among other projects.

Figure 52. 2023 Budget Deficit Financing Allocation for Investment

Infrastructure - IDR 85.3 tn Education - IDR 20 tn Others - IDR 70.6 tn

● Trans-Sumatra Toll Road Improve access to education and Among others, to:
● Power infrastructure (transmission, continuation of education development, ● Develop disaster pooling funds4
substations, and rural electricity including endowment funds for Islamic ● Preserve the environment
● Land procurement boarding schools and research & ● Strengthen Indonesia’s international
● Social housing development relations

Sources: Ministry of Finance (2022)

Notes: [1] The 2019-2022 figures are based on realised spending, whereas the 2023 figure is based on the planned budget; [2] Assuming ICP 105,
14,700 IDR/USD exchange rate; [3] RON 92-equivalent price from other retailers. [4] Disaster pooling funds is a scheme for collecting, accumulating and
distributing special disaster funds by a fund management institution. 35
8. Government

8.3 The 2023 spending budget has been set lower as part of fiscal
consolidation (in an attempt to maintain the deficit below 3% of Government spending
GDP) (realised), 2022, IDR trillion
Figure 53. Central Government Spending, 2019-2023 (IDR trillion)1
Social Food
protection security
IDR 161 tn IDR 94.1 tn
(7.08%) (4.14%)

Education Health
IDR 575 tn IDR 212.9 tn
(25.28%) (9.36%)

Infrastructure Environment
IDR 373 tn IDR 13.6 tn
(16.4%) (0.6%)
Table 2. Fuel Price Conditions during the 2022 Fuel Subsidy
Adjustment 2023 spending priorities:
Fuel type Solar Pertalite (RON Pertamax ● Improve Indonesia’s human
90) (RON 92) capital
● Accelerate basic infrastructure
Market price 13,9502 14,4502 17,3003 development (including for the
(IDR per L) new capital city)
● Improve the efficacy of social
Retail price 5,150 7,650 12,500 protection programmes, including
(IDR per L)
subsidy reforms
● Support the revitalisation of
Gap/subsidy 8,800 6,800 4,800
(IDR per L) value-added and export-based
(63%) (47%) (28%)
industries
● Support the adoption of green
Adjusted price 6,800 10,000 14,500
(IDR per L) energy and the energy transition

The fuel subsidy adjustment in September 2022 was one of the major fiscal decisions made
last year. This was done in response to the oil price shock following the Russian invasion of Ukraine,
where, in the absence of an adjustment, there could have been severe pressure on the state budget.
Prior to the adjustment, the government subsidy ranged from 28% to 63% of the market price,
depending on the fuel type. It is worth noting that according to the 2021 Social and Economic Survey
(i.e. Susenas 2021), less than 30% of the allocated subsidy was being enjoyed by people at the
bottom 40% household income, indicating ineffective targeting. Nevertheless, as a way to cushion the
impact for low-income households, the GoI redirected some of the saved budget spending via ad-hoc
conditional cash transfers (i.e. BLT BBM), where eligible families were entitled to IDR 600,000 each
distributed across four months.
Sources: Ministry of Finance (2022)
Notes: [1] The 2019-2022 figures are based on realised spending, whereas the 2023 figure is based on the planned budget; [2] Assuming ICP 105,
14,700 IDR/USD exchange rate; [3] RON 92-equivalent price from other retailers.
36
9. Development

The Government of Indonesia’s efforts to improve living standards are

constrained by its budget capacity, and the government needs to increase
coverage and quality infrastructure. Such shortcomings are exacerbated by
uneven development that disproportionately affects East Indonesia.

9.1 Indonesia’s Human Development Index (“HDI”)1 9.2 HDI scores in East Indonesia provinces are
score has increased again after stagnating during mostly at a medium level, indicating unequal
the first year of the pandemic development

Figure 54. Indonesia HDI Scores, 2011-2022 Figure 56. Indonesia HDI by Region and Level, 2022

Figure 55. Indonesia HDI by Indicator, 2022

5 provinces with the 5 provinces with the
Expected Years of Average Length
Life Expectancy highest HDI scores lowest HDI scores
(Year)
Schooling2 of School2
(Year) (Year)
71.85 13.10 8.69 1 DKI Jakarta 81.65 1 Papua 61.39

Expenditure per
HDI Growth
capita (%) 2 DI Yogyakarta 2
80.64 West Papua 65.89
(IDR mn per year)
11.5 72.91 0.86
East Nusa Tenggara
3 East Kalimantan 77.44 3 65.90

During the first year of the pandemic in 2020,

Indonesia’s HDI score stagnated, largely due to a 4 Riau Island 73.52 4 West Sulawesi 66.92

drop in per capita expenditure. However, it has been

able to improve again since 2021.
5 Bali 76.44 5 West Kalimantan 68.63

While already passing United Nations Development

Programme (“UNDP”)’s “High Development” category Provinces with medium HDI scores are
(i.e. having an overall HDI score above 70 but below disproportionately represented outside of West
80), Indonesia is still fourth amongst its ASEAN-5 Indonesia3. While no provinces had low HDI scores
peers, with life expectancy at birth and mean years of (i.e. HDI scores below 60) in 2022, the majority of
schooling being the lowest performing indicators. provinces with medium HDI scores were found in
Central Indonesia and East Indonesia, which represent
20.6% of Indonesia. In addition, West Indonesia was
the only region with very high HDI scores (i.e. HDI
scores above 80).
Sources: Badan Pusat Statistik (2023); United Nations Development Programme (accessed 2023); PwC Analysis (2023).
Notes: [1] The HDI is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and
having a decent standard of living. The HDI is the geometric mean of normalised indices for each of the three dimensions; [2] Expected years of schooling refers to
the number of years a child of school entrance age is expected to spend at formal education, whereas average length of school refers to average number of years the
population older than 25 have spent in formal education. [3] West Indonesia refers to provinces in Sumatra and Java; Central Indonesia refers to provinces in
Kalimantan, Sulawesi, West Nusa Tenggara and East Nusa Tenggara; East Indonesia represents provinces in Maluku and Papua.
37
9. Development

9.3 Indonesia’s social security system has yet to 9.4 Learning from the shortcomings of Indonesia’s
cover all of its citizens healthcare system during the COVID-19 pandemic

Figure 57. Indonesia’s average life expectancy, Figure 59. Six Pillars of Indonesia’s Healthcare
2011-2022 (years) System Transformation
Referral service
Primary service transformation transformation
(Education, primary and (Improved access to
secondary prevention, capacity and quality of
building for primary services) secondary and
tertiary services)

Healthcare system Healthcare payment

resilience transformation system transformation
(Improved resilience of the (Sustainable availability,
pharmaceutical sector and just allocation and efficient
Between 2011 and 2022, Indonesia’s life expectancy emergency response) use of healthcare financing)
(“Umur Harapan Hidup” or “UHH”) increased by 1.84
years from 70.01 to 71.85 years (2.6% growth). West Healthcare technology
Sulawesi was recorded as having the lowest UHH of Healthcare human capital
transformation
transformation
65.6 years, whereas DI Yogyakarta had the highest (Development and
(Increased student quotas,
UHH of 75.1 years. utilisation of technology,
scholarship and inclusion of
digitisation and
international graduates)
Indonesia launched its universal healthcare biotechnology)
programme, Jaminan Kesehatan Nasional, in 2014. As
of 2022, it had reached 88.6% coverage (see Figure In 2021, the Ministry of Health launched its healthcare
60). To support access to healthcare, the GoI also system transformation programme, which is based on
provides premium assistance for people with low six pillars (see Figure 61). This was done in
income (i.e. Program Penerima Bantuan Iuran). In acknowledgement of the shortcomings of Indonesia’s
2022, 96.7 million people were recipients of this healthcare system during the COVID-19 pandemic.
programme. The programmes from these pillars include but are not
limited to:
The subsidised premiums are paid for directly from the ● Empowerment of primary services (i.e. municipal
Ministry of Health to Badan Penyelenggara Jaminan healthcare centres – Puskesmas);
Sosial (“BPJS”), the state-owned enterprise in charge ● Development of a priority service network that
of the nation’s social security. Although social security focuses on the nine conditions with the highest
coverage has been increasing, the programme still mortality rates (e.g. stroke, cancer, diabetes);
needs more funding from the state budget, which ● Production of six of the 14 types of antigen
would require the government to be more efficient in vaccine;
managing spending. ● Expansion of promotive and preventive benefits;
● Equal distribution of scholarships for all regions;
Figure 58. Social Security Coverage, 2014-2022 (%) ● Integration and development of healthcare data
systems.

The Ministry of Health has also developed the 2024

Strategy Blueprint for Digital Healthcare
Transformation, which was created in
acknowledgement of the myriad of government
applications and the limited regulations on data
standardisation and data exchange. The end goal is to
develop the Indonesia Health Services (“IHS”)
Platform, an integrated platform for the digital
healthcare ecosystem that integrates information from
various healthcare applications in Indonesia.
Sources: Badan Pusat Statistik (2023); Ministry of Health (2023); PwC Analysis (2023)
38
9. Development

9.5 Indonesia is still lacking sufficient and qualified 9.6 “Merdeka Belajar” seeks to transform
teachers Indonesia’s educational system

Figure 60. Average and Expected Lengths of Merdeka Belajar was launched by the Ministry of
Schooling1 in Years, 2011-2022 Education and Cultural Affairs to transform Indonesia’s
educational system to support the improvement of its
human capital. As of now, it consists of 22 programmes
that form part of a series of continuous developments
that have been undertaken since the first policy of
revising the national exams was introduced in 2019.

Figure 63. Examples of Merdeka Belajar

Programmes

Merdeka Belajar Programmes

Between 2011 and 2022, Indonesia’s expected and
average lengths of schooling (“HLS” and “RLS”,
respectively) experienced 15% and 16% growth, 1 Revision of the national exam (i.e. “Ujian
respectively. Provinces with the lowest HLS were from Nasional” or “UN”) to one that is focused on
West Indonesia, including West Java, whereas the literacy, numeracy and character with
lowest RLS were all found in East Indonesia, in regions international benchmarks in mind.
such as East Nusa Tenggara.
Figure 61. Teacher Availability at Different 2 Introduction of the “Kampus Merdeka”
Educational Levels, 2019 (%) programme, as part of which university
students have been allowed to convert two
semesters’ worth of course credits into other
activities such as courses in other
programmes, internships, student
exchanges and humanitarian projects.

3 Change to school operational aid

(“Bantuan Operasional Sekolah” or
“BOS”) via increases in funds, expansion of
the allocation for non-permanent teachers
and the strengthening of reporting
In terms of teacher availability, in 2019, the majority of accountability.
schools across all educational levels suffered from a
lack of teachers (see Figure 63), where schools with
4 Introduction of “Merdeka Mengajar”, an
sufficient numbers of teachers sat at a single-digit
integrated platform for educators with
percentage, with the exception of kindergartens
reference materials to support standardised
(15.4%). Moreover, only teachers at the senior high
quality through collaboration.
school level scored higher than 60 out of 100 in the
teacher competency test (see Figure 64).
Figure 62. Teacher Competency Scores across 5 Regulation of sexual abuse prevention
Levels of Education, 2019 and treatment in higher education to
foster a community of academicians that is
healthy and safe.
54.8 58.6 62.3 58.4

Elementary Junior Senior Vocational

school high school high school high school
Note: [1] Expected years of schooling refers to the number of years a child of school entrance age is expected to spend at formal education, whereas average
length of school refers to average number of years the population older than 25 have spent in formal education. 39
Sources: Badan Pusat Statistik (2023); Ministry of Education and Cultural Affairs (2023); PwC Analysis (2023).
9. Development

9.7 On average, an Indonesian spends IDR 11.48 9.8 About 24.7% of Indonesians were living below
million per year (USD 751.54 per year) or the lower middle-income poverty line as of 2021
IDR 957,000 per month (USD 62.63 per month)1
Figure 64. Expenditure per Capita, 2011-2022, Figure 66. Poverty Levels, 2012-2021, (%)
IDR Million per Year

Notes: According to BPS, expenditure per capita is determined by the average

expenditure per capita per year (from Survei Sosial Ekonomi Nasional/Susenas) and
Purchasing Power Parity (PPP) index.

Between 2011 and 2022, Indonesia’s expenditure per In general, poverty is in decline in Indonesia, although
capita increased from IDR 9.65 million to IDR 11.48 Indonesia’s poverty levels are still the highest in the
million per year (19% growth). During the start of the ASEAN-5. The measures by which Indonesia
COVID-19 pandemic in 2020, the number dropped underperforms include the share of people living below
from IDR 11.3 million to IDR 11.01 million, which can the international poverty line; as of 2021, 4.4% of
be attributed to the loss or decrease of income along Indonesians were living on less than USD 2.15 a day.
with the mobility restrictions implemented to contain
the spread of the virus. However, the number has since Based on other poverty measurements, 24.7% of
rebounded; in 2022, it surpassed the pre-pandemic Indonesians live below the lower middle-income
figure poverty line (USD 3.65 a day) and 61.9% live below
the upper middle-income poverty line (USD 6.85 a
Similar to other HDI indicators, the lowest expenditure day). It is worth noting that between 2012 and 2021,
per capita is disproportionately found in provinces in people living below the lower middle-income poverty
East Indonesia such as Papua, East Nusa Tenggara line experienced the highest average annual reduction
and North Maluku. (2.6% per annum).
Figure 65. Government Cash Transfer Programmes

Government Cash Transfer Programmes

1 Bantuan Langsung Tunai (“BLT”) 2 Program Keluarga Harapan (“PKH”)

a. BLT BBM (i.e. fuel) Description: Conditional cash transfer that

Description: Conditional cash transfer to cushion prioritises pregnant women and children’s access to
the impact of the fuel price increase in 2022 healthcare and education
Benefit: IDR 600,000 per month Benefit: IDR 900,000 to IDR 11.4 million per year
(depending on the number of beneficiaries)
Recipients: 20.7 million families in 2022
Recipients: 18.8 million families in 2022
b. BLT minyak goreng (i.e. cooking oil)
Description: Conditional cash transfer to cushion
the impact of cooking oil scarcity in 2022
3 Kartu Sembako
Benefit: IDR 100,000 per month
Recipients: 20.7 million families in 2022
c. BLT Desa (i.e. rural area) Description: Conditional cash transfer for purchases
Description: Conditional cash transfer specifically of basic commodities at selected merchants
for people living in rural areas Benefit: IDR 200,000 per family per month
Benefit: IDR 300,000 per month Recipients: 18.8 million families in 2022
Recipients: 7.48 million families in 2022
Notes: [1] Assuming 15,274 IDR/USD exchange rate 40
Sources: Badan Pusat Statistik (2023); World Bank (accessed 2023); Ministry of Social Affairs (accessed 2023); Ministry of Finance (accessed 2023); PwC
Analysis (2023).
9. Development

9.9 Gender outcomes have remained relatively stable over the past decade, except in regard to the number
of women with university-level education

2018 witnessed a tipping point where there were more women than men in the workforce with university-level
education. The number of women who at least have a senior-high school-level education has also been increasing.
Nevertheless, the gender pay gap remained relatively high at around 20%. Workforce participation among women
also remained at 50%, compared to 80% for men.

Figure 67. 2022 Gender Pay Gap Figure 69. Sectors with Highest Gender Pay
Gap in 2022

On average, women make Sectors with highest gender pay

22% less than men gap in 2022

(IDR 736,000 per month)

1 Agriculture, forestry and fishing –
women earned 45.3% less than men
(IDR 823,000 per month)
Figure 68. Gender Pay Gap, 2014-2022 (mn IDR per month)

2 Other services – women earned 43.3%

less than men (IDR 1 million per
month)

3 Construction – men earned 40.8% less

than women (IDR 179,000 per month)

Figure 70. Workforce Participation by

Gender in 2022

Of women were working

53% (5.75% unemployment rate)

84% Of men were working

(5.93% unemployment rate)

Table 3. Educational Attainment by Gender in 2022

No schooling Primary School Senior High School University

Women 1.87% 24.03% 20.05% 8.29%

(1.9 million) (25.2 million) (19.8 million) (8.7 million)

Men 1.08% 23.66% 21.15% 7.66%

(1.1 million) (24.8 million) (22.1 million) (8.0 million)

Sources: Badan Pusat Statistik (2023); PwC Analysis (2023).

41
 10. Governance

Governance plays an important role in contributing to national economic growth

and ensures that countries have the necessary foundations to operate in an
environment of constant change.

● The implementation of the Job Creation Law to

10.1 World Governance Indicators (“WGIs”) promote foreign and private sector development
through the streamlining of tax regulations, the
To capture foreign investors’ interest and investment, simplification of business licensing processes, the
Indonesia has committed to improving their easing of labour laws and the liberalisation of FDI
transparency in government efforts and ease of structures.
conducting business. The Worldwide Governance
Indicators comprise six broad indicators of governance. Figure 71. Indonesia’s Best and Worst Performing
They have been used to judge the governance of over Governance Dimensions (2017-2021)
two hundred countries and territories over the period from
1996 to 2021. They are as follows:
1. Voice and Accountability
2. Political Stability and Absence of Violence/Terrorism
3. Government Effectiveness
4. Regulatory Quality
5. Rule of Law
6. Control of Corruption

Between 2017 and 2021, Indonesia’s first, third, fourth

and fifth indicators consistently increased, while the
second and sixth indicators decreased.

Among the six indicators, the government Source: World Governance Indicators – World Bank (updated 2022*)
effectiveness index has been consistently ranked
the highest over the past five years. The government Among the six indicators, the control of corruption
effectiveness index increased by 11.05 points between index has been consistently ranked the lowest
2017 and 2021, indicating increased public trust in the over the past five years. The control of corruption
quality of public services in the country. Further efforts index declined by 7.69 points between 2017 and 2021.
by the GoI that contributed to the increase in the A supplementary report by Transparency International
government effectiveness index since 2017 have demonstrated that Indonesia scored 34 points out of
included: 100 on the 2022 Corruption Perceptions Index (“CPI”).
● A push for stronger infrastructure development. The The score remained relatively low, partly because of
development of the new capital city in East the GoI’s decision to amend Law No. 19 of 2019 on
Kalimantan is expected to boost economic growth, the Corruption Eradication Commission, which
improve logistics networks and create local jobs; changed the jurisdiction of the institution to be under
● The pursuit of a free and active foreign policy and the executive branch thus reducing its independence.
diplomacy with many countries; and Indonesia ranked #110 out of 180 in 2022 in terms of
its effectiveness in controlling systematic corruption
Table 4. Rank of E7 Performance in the 6 WGIs within its borders.

Source: World Governance Indicators – World Bank (updated 2021)

42
 10. Governance

10.2 Global Competitiveness Index (“GCI”)

In 2020, Indonesia's GCI performance was 55.3/100, Indonesia has been categorised as a
second to China amongst E7 countries. The 2020 “less-prepared” country for economic
special edition of the Global Competitiveness Report transformation. Transformation readiness1 is a
("GCR") elaborated on economic transformation through measurement of each country’s macroeconomic
improvements in the environment, human capital, and microeconomic productivity. Factors tested
productivity in markets and continued innovation. include business environment quality,
sophistication of business operations and
The GCR is a yearly report published by the World monetary and fiscal policy, social infrastructure
Economic Forum. The twelve pillars of competitiveness and political institutions. The tested factors and
are shown below: Indonesia’s associated transformation scores are
1. Institutions as follows:
2. Appropriate infrastructure ● Ensure public institutions embed strong
3. Stable macroeconomic framework governance principles and a long-term vision
4. Good health and primary education and build trust by serving their citizens – 58.8
5. Higher education and training ● Upgrade infrastructure to accelerate the energy
6. Efficient goods markets transition and broaden access to electricity and
7. Efficient labour markets ICT – 62.7
8. Developed financial markets ● Shift to more progressive taxation, rethinking
9. Ability to harness existing technology how corporations, wealth, and labour are taxed
10. Market size – both domestic and international nationally and in an international cooperative
11. Production of new and different goods using the framework – 53.7
most sophisticated production processes ● Update education curricula and expand
12. Innovation investment in the skills needed for the jobs and
markets of tomorrow – 49.0
The aggregated GCI score is the average score of the 12 ● Increase incentives to direct financial resources
pillars, with a higher index indicating better towards long-term investments, strengthen
competitiveness in factor-driven (first to fourth pillars), stability and expand inclusion – 59.7
efficiency-driven (fifth to tenth pillars) and ● Rethink competition and the anti-trust
innovation-driven (eleventh and twelfth pillars) countries. frameworks needed in the Fourth Industrial
Revolution, ensuring market access both locally
Figure 72. Infographic of E7 Countries’ Opinions on and internationally - 62.9
Supply Chain Evolution over the Next Five Years ● Facilitate the creation of the markets of
tomorrow, especially in areas that require
public-private collaboration – 45.0
● Incentivise and expand patient investments in
research, innovation and invention that can
create new markets of tomorrow – 45.6
● Incentivise firms to embrace diversity, equity and
inclusion to enhance creativity – 60.4
● Rethink labour laws and social protection for the
new economy and the new needs of the
workforce – N/A2
● Expand eldercare, childcare and healthcare
infrastructure, access and innovation for the
benefit of people and the economy – N/A2

With the enactment of the Job Creation Law into

As of 2020, Indonesia and five other E7 countries – Brazil,
effect and the success of the G20 summit, the
China, Mexico, Russia and Turkey – believed their supply
likelihood of investments coming in to Indonesia may
chains would be more globalised in the upcoming five
increase. This will increase the overall scores for
years. India was the only country that expected its supply
each indicator, and the overall GCI score in
chain to be neutral in regard to globalisation changes.
Indonesia in the near future.
Sources: The Global Competitiveness Report – the World Economic Forum “WEF” (special edition updated 2020)
The Global Competitiveness Rankings have been paused in the wake of the COVID-19 pandemic and the challenges brought by it to the countries. 43
Notes: 1) Scores range from 0 being least prepared to 100 being best prepared. 2) No response/score for these two aspects.
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