Indonesia: Selected Issues

This Selected Issues paper focuses on Indonesia’s Golden Vision 2045 and ways to make the most out of public investment. This paper presents a quantitative assessment of the impact of public investment on activity and the role of spending efficiency therein Aside from horizontal structural reforms, raising public investment should be a key pillar of Indonesia’s pursuit of its Vision 2045. However, this must be complemented by policies aimed at enhancing the efficiency of public investment, thereby maximizing its impact. Mobilizing additional revenues will create the fiscal space needed to scale up the public investment while maintaining compliance with Indonesia’s longstanding fiscal rules. Higher public investment would make a meaningful contribution to lifting Indonesia toward high-income status. Simulations suggest that the boost in public investment under enhanced efficiency would raise Indonesia’s real gross domestic product sizably, closing about one-third of the long-run income gap relative to the high-income benchmark.