Dealing With Current Account Deficit - OECD

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1 Ministry of Finance Republic of Indonesia Dealing With Current Account Decit: Indonesias Experience Policies for a Sustainable Current Account in Indonesia OECD Development Center Paris, 22 January 2014 Dr. Luky Alrman Fiscal Policy Agency, Ministry of Finance Sekretariat Jenderal Kementerian Keuangan

2 ExecuNve Summary ! Indonesia is a country with rela6vely high yet stable economic growth. But as an open economy, slowing global growth has adversely impacted Indonesias economy; one of them is the widening current account decit (CAD); ! Indonesias CAD is caused by both external factors (slowdown in major trading partner and signicant decline in commodity prices) and domes6c factors (while import is s6ll strong in line with robust domes6c economic ac6vi6es) external imbalances; ! CAD is a reasonable consequence of countries in the development stage like Indonesia, where savings cant fulll all investment needs, but it should be (i) managed at a reasonable level, (ii) supported by adequate nancing, and (iii) free from structural problems, such as unhealthy fuel subsidy regime, too much reliance on commodity based export, etc. ! To manage CAD at a reasonable and sustainable level, government and the relevant authori6es have been and will be issuing a series of policy measures, both for short term and and long term. Ministry of Finance 2

3 OUTLINE Indonesia at Glance Indonesia Current Account Decit: Current and Structural Problems Policy Packages to Deal with Current Account Decit Problems Recent Development on Indonesias Trade Balance Medium Term Challenges and Policy DirecNon: ConNnuous Structural Reform Ministry of Finance

4 Indonesia at Glance

5 Indonesia has demonstrated consistently strong and robust macroeconomic performance Strong and Consistent GDP Growth Well Diversied Economy Real GDP (yoy Growth) GDP by Sector (% of total GDP) GDP by Expenditure (% of total GDP) as of 30 Sep 2013 as of 30 Sep 2013(1) 6.5% 6.1% 6.8% 6.3% 6.2% 6.5% 6.2% 5.8% 5.7% 6.0% 5.3% 6.0% 4.6% 4.8% 4.1% 3.7% 5.7% 5.5% 5.3% 4.6% 5.0% 3.6% (1.1)% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q3 2013 2014 2013 Outlook Budget Indonesia Peers (Baa1 - Baa3) Source: Ministry of Finance, Bank Indonesia, BPS, Moodys According to Moodys, Indonesias peers will grow at 3.6% in Source: BPS 2013 (1) Numbers do not add up to 100% Favored by Investors With Increasing Direct Investments Manageable Debt PosiNon and Sustainable Fiscal Decit (US$bn) 2011 Growth: 2012 Growth: 2013 Growth: 20.5% 24.6% 18.3%(1) 2011 2012 2013 Total: US$27.9bn US$34.8bn US$30.2bn Source: BKPM Note: IDR/U$ exchange rate as at end of reporPng period. Source: Ministry of Finance (1) CumulaPve up to 3Q 2013 Note: 2013 Total Debt / GDP from 2013 Revised Budget Ministry of Finance 5

6 Indonesia economic growth is much stable compared to others Selected ASEAN Members GDP Growth BRIC GDP Growth (%,yoy) compared to Indonesia (%,yoy) Brazil Rusia India China Indonesia 14 12 10 8 6 G-20s, Q3 2013 GDP Growth (%,yoy) China 7.8 USA 1.6 4 Indonesia 5.6 UK 1.6 Turkey 4.4 Mexico 1.3 2 India 4.8 Japan 2.7 Brazil 2.2 Canada 3,5 0 Argen6na 8.3* Germany 0.6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Saudi Arabia 3.2 France 0.2 2010 2011 2012 2013 Australia 2.3 EU -0.4 S. Korea 3.3 Italy -1.9 S. Africa 2.0* Source: WEO, Bloomberg, * Q2-2013 Ministry of Finance 6

7 Indonesia trade relies heavily on Asian trading partners, whereas non-oil export desNnaNons are sNll dominated by Asian countries. Non oil and Gas Export by Destination C ountry Non Oil and Gas Import by C ountry of Origin Jan - Nov 2010 Jan - Nov 2010 Australia 3.78% Germany USA lainnya 2.29% 21.34% Thailand 8.72% Others 3.17% United Kingdom 26.93% Thailand 1.33% Jerman 6.96% Malaysia 2.75% USA Singapura 5.90% India ASEAN 10.36% ASEAN 9.35% other ASEAN 2.38% 21,31% 20,50% 4.37% ASEAN L ainnya Korea S 1.63% Australia Singapura 5.18% 1.85% 7.49% India China Malaysia 7.51% 18.09% Jepang 4.13% Japan China 15.68% 12.74% 10.67% South Korea 5.39% Export to Asian Countries = US$68 billion Import from Asian Countries = US$64.6 billion Export to Asian Countries = US$78.5 billion Import from Asian Countries = US$84.4 billion Ministry of Finance 7

8 Most non-oil & gas exports are commodity based products such as coal, palm oil, and rubber... Agricultural Products Value % Major CommodiNes Export (% of Total Non-Oil & Gas Export) Shrimps: Fresh and Frozen 704 0.5 Jan Nov 2013 Coee 671 0.5 Mining Agricultural Fish 625 0.5 Products Products Others Agricultural Products 271 0.2 Excluding 2.3% Cocoa Beans 252 0.2 Petroleum Spices 244 0.2 & Gas Fruits 112 0.1 13.3% Industrial Products Value % Industrial Vegetable Oil: Palm Oil 9,032 6.6 PreparaNon Rubber Products 5,720 4.2 Products Garments Products 4,666 3.4 48.6% Electrical Apparatus Products 4,096 3.0 Processed Food Products 3,079 2.3 Other TexNles Products 3,020 2.2 Paper and Paper Goods Products 2,242 1.6 Commodity Export by Value as a share of Total Export by Value, 2012 Chemicals Products 1,989 1.5 Tin Products 1,429 1.0 Source: World Bank 2013 Plywood Products 1,270 0.9 Mining Products Excluding Petroleum & Gas Value % Coal 14,866 10.9 Copper Ores and Concentrates 1,305 1.0 Nickle Ores and Concentrates 901 0.7 Bauxite 711 0.5 Other Mining Products 344 0.3 Ministry of Finance Note: Value in US$ millions, % of total non-oil & gas exports 8

9 Indonesia Current Account Decit: Current and Structural Problems

10 Various factors, both external and domesNc, have caused the recent pressures on Current Account decit DomesNc Factors External Factors Economic acNvity Global slowdown Foreign Capital Investment Liquidity risks Current account decits Trade Balace decits Pressures on Financial Export : commodity prices, oil lihing Account Import of oil&gas, Raw materials and capital goods Service account decits (Freight Insurance ) Porcolio Direct Income account decits (Interest Dividend ) investment investment Reserves & Exchange rates Ministry of Finance 10

11 Indonesia Balance of Payment has recorded decit for three consecuNve quarters, but CAD began to narrow in Q3-2013 2011 2012 2013 ITEM Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 A.CURRENT ACCOUNT 2.9 0.3 0.8 -2.3 1.7 -3.2 -8.1 -5.3 -7.8 -24.4 -5.9 -10.0 -8.4 1. Goods Trade Balance 9.3 9.2 9.7 6.6 34.8 3.8 0.8 3.2 0.8 8.6 1.6 -0.7 0.007 a. Export, fob 45.9 51.8 52.4 50.7 200.8 48.4 47.5 45.5 47.1 188.5 45.2 45.6 44.1 b. Import, fob -36.6 -42.6 -42.7 -44.1 -166.0 -44.5 -46.7 -42.4 -46.3 -179.9 -43.6 -46.3 -44.2 2. Services -1.8 -3.1 -2.6 -3.1 -10.6 -2.0 -2.8 -2.4 -3.2 -10.3 -2.5 -3.1 -2.6 3. Income -5.5 -6.8 -7.4 -7.0 -26.7 -6.0 -7.1 -7.0 -6.7 -26.8 -6.1 -7.1 -6.7 4. Current Transfer 1.0 1.0 1.0 1.2 4.2 1.0 0.9 0.9 1.3 4.1 1.1 1.0 0.9 B.CAPITAL & FINANCIAL ACCOUNT 4.8 11.6 -3.1 0.2 13.6 2.1 5.1 5.9 12.1 25.2 -0.3 8.4 4.9 1. Capital Account 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.0 2. Financial Account 4.8 11.6 -3.1 0.2 13.5 2.1 5.1 5.9 12.1 25.1 -0.3 8.4 4.9 a. Direct Investment 3.8 2.5 2.1 3.1 11.5 1.6 3.7 4.5 4.1 14.0 3.9 3.8 5.1 b. Portfolio Investment 2.9 5.2 -4.6 0.2 3.8 2.6 3.9 2.5 0.2 9.2 2.8 3.4 1.9 c. Other Investment -1.9 3.9 -0.7 -3.2 -1.8 -2.1 -2.5 -1.2 7.7 1.9 -6.9 1.2 -2.1 C.TOTAL (A + B) 7.8 11.9 -2.3 -2.1 15.3 -1.1 -3.1 0.6 4.3 0.7 -6.2 -1.5 -3.5 D.NET ERRORS AND OMISSIONS -0.1 0.0 -1.6 -1.6 -3.4 0.1 0.2 0.2 -1.1 -0.5 -0.4 -1.0 0.9 E. OVERAL BALANCE (C + D) 7.7 11.9 -4.0 -3.7 11.9 -1.0 -2.8 0.8 3.2 0.2 -6.6 -2.5 -2.6 Reserve Assets Position 105.7 119.7 114.5 110.1 110.1 110.5 106.5 110.2 112.8 112.8 104.8 98.1 95.7 (In months of imports & official debt repayment) 7.5 7.9 7.1 6.5 6.5 6.2 5.8 6.1 6.1 6.1 5.7 5.4 5.2 Current Account (% GDP) 1.5 0.1 0.3 -1.1 0.2 -1.5 -3.7 -2.4 -3.6 -2.8 -2.6 -4.4 -3.8 Debt Service Ratio (%) 18.4 21.9 19.8 26.2 21.7 30.3 35.0 35.2 39.4 34.9 34.8 41.5 39.1 Source: Bank Indonesia, Kemenkeu (US$ billion) The current account decit began to narrow to a USD8.4 billion (3.8% GDP) compared to the previous quarter at USD10 billion (4.4% GDP). This is a decit for the 8th consecu6ve quarter. Goods trade decit fell to USD7 million from USD0,7 billion due to non-oil trade balance improvement. The capital and nancial account surplus fell to USD4.9 billion as weakening porcolio and other investments FX reserves at the end of Dec 2013 has improved to US$ 99,4 billion Ministry of Finance 11

12 Current Account turned to decit starNng at the end of 2011 due to declining export while import is sNll solid CA turned to be decit due to decit in goods trade balance. Export was slowdown, mostly because of declining price, while export volume was quite stable As domes6c market expanded, import has been increasing, especially raw materials (76% of total import) and capital goods (17% of total import) Source: Bank Indonesia, Kemenkeu Ministry of Finance 12

13 The widening of current account decit is mainly due to deterioraNon of goods trade balance, especially oil and its products, combined with other accounts (Service and Income Accounts)... Import Oil & Gas Volume (miliion Kg) Price Index (LHS) Value (million US$) 1.60 50,000 1.40 45,000 40,000 1.20 35,000 1.00 30,000 0.80 25,000 0.60 20,000 0.40 15,000 0.20 10,000 0.00 5,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Nov 2013 Oil Subsidy V olumes 45000 (thousand KL) Extensive trade balance decits are mainly caused by higher imports growth 40000 than export growth, par6cularly in oil and gas. Increasing fuel subsidy in 2013 was 35000 caused by increased oil and gas import and consump6on. 30000 2006 2007 2008 2009 2010 2011 2012 2013* Source: Bank Indonesia, Kemenkeu Ministry of Finance 13

14 The service account has been deficit for years, that is in line with deficit in the transportation sector (freight) caused by the increasing trends in import-export activities and insurance business... Indonesia Service A ccount Deficits Royalties and License Fees (USD Billion) 22,000 Insurance Services 5 0 0 .0 0 20,000 Transport 377.53 380.08 18,000 Total Services Account Deficits 4 0 0 .0 0 X+M 16,000 3 0 0 .0 0 14,000 274.38 12,000 2 0 0 .0 0 10,000 -110.63 0632.2 1 0 0 .0 0 8,000 -110.33 0330.8 6,000 8.22 -8220.1 0 .0 0 4,000 2,000 - 1 0 0 .0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013* a s o f September/Q3 The service account tends to move in line with export-import. Freight services decit increasing payments to foreign shipping and airline companies due to lack domesNc capacity Insurance services decit the use of foreign insurance services in trade and transportaNon sectors, most of the risk from domesNc insurance company is absorbed by foreign reinsurers Ministry of Finance 14

15 The income account has also been deficit for years... Indonesia Income Account Deficits 30.00 (USD Billion) 36000 19.24 19.40 Compensation of Employees 20.00 Investment Incomes 31000 Total Income A ccount Deficits FDI 5.43 10.00 26000 26.80 -26799.77 21000 0.00 -226.68 6675.82 -19960.15 20.0 16000 -1 0.00 11000 -2 0.00 6000 1000 -3 0.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013* as of September/Q3 Rising income decit due to growing FDI income (growing protability) as a result of increase in FDI This is partly funded by reinvested earnings of foreign-owned companies Ministry of Finance 15

16 CAD Financing Sustainability through FDI needs to be improved Source: Bank Indonesia, Kemenkeu 8,000 6,000 4,000 2,000 0 -2,000 -4,000 -6,000 -8,000 Basic Balance CA Direct Investment Basic Balance = Net FDI + Current Account Balance -10,000 -12,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 2011 2012 2013 Direct investment (net FDI) has increased while CA decit started to worsen, resulNng in the widening basic balance decit Ministry of Finance 16

17 Although the recent trend of pormolio investment is sNll increasing, but it sNll cant fully support the nancing needs for CAD Source: Bank Indonesia, Kemenkeu 10,000 9,206 5,000 0 -5,000 -10,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 2011 2012 2013 Portofolio Investment Average A nnual Portfolio Average annual porcolio investment in 2012-2013 is around USD9.0 billion, although it is s6ll rela6vely vola6le. On the other hand, the annual average basic balance decits is USD11.0 billion, implying there is s6ll nancing decit to support CAD Ministry of Finance 17

18 Emerging economies, including Indonesia, are sNll vulnerable, with the risks mostly coming from external side... Source: World Bank 2012 10 2013f -10 10 -10 8 -8 Share of GDP Share of GDP 8 -8 6 -6 6 -6 4 -4 4 -4 2 -2 2 -2 0 0 0 0 -2 2 -2 2 -4 4 -4 4 -6 6 -6 6 -8 8 FDI Portfolio CAB (LHS) FDI Portfolio CAB (LHS) -8 8 Share Share of of GDP GDP Some Emerging Economies Indicators In 2012, the Indonesia CAD could s6ll be nanced 3Q 2013 Brazil Indonesia India Afrika Selatan Turki by FDI and porcolio ac6vi6es, while in 2013, 2.2 5.8 5.3 1.8 4.7 GDP (% yoy) Inflation (% yoy) 6.1 8.6 10.8 6.3 8.3 those sources couldnt catch up with the CAD Unemployment Rate (%) 5.3 6.3 4.7 24.7 9.9 The problem is not unique for Indonesia, other Fiscal Deficits (% PDB) (2.5) (1.9) (7.0) (5.2) (3.0) countries such as S. Africa, Thailand, and Turkey Current Account (% PDB) (3.7) (3.8) (1.2) (6.8) (7.7) also experienced CAD together with its nancing Exc. Rates (% QtoQ) (15.9) (16.9) (15.0) (5.2) (10.4) Due to current nancial turbulence, most Foreign Reserves 364.5 97.0 277.2 49.3 134.2 emerging economies mostly face the ina6on Debt to GDP 19.4 24.0 49.6 40.0 45.9 pressure, CAD, Fiscal Decits, and/or vola6lity of Sources: IMF December 2013, World Bank, EIU, Kementerian Keuangan RI, BPS, Biro StaPsPk Brazil India, Afrika Selatan dan Turki Note: Data adalah untuk 3Q2013 kecuali for scal balance, exchange rate dan Rasio Utang PDB yang merupakan angka 2013. exchange rates. Cadangan devisa merupakan angka terakhir di bulan Desember 2013 Ministry of Finance 18

19 Policy Packages to Deal with Current Account Decit Problems

20 To deal with the CAD problems, the government of Indonesia has taken some scal policy measures AddiNonal budget for social protecNon and infrastructure: Support of Small and Medium Enterprise: 1. Addi6onal income tax for selected goods. The criteria l Condi6onal Cash Transfer (PKH): IDR0.7tn l Simplica6on of Business License applica6on process includes: l Uncondi6onal Cash Transfer (BLSM): IDR9.3tn l Easier access to electricity l Goods not used for domes6c industries l Poor Students Aid (BSM): IDR7.5tn l Improved access to loans l Household consump6on goods l Addi6onal alloca6on of rice for the poor (Raskin): l Support for the simplica6on of regula6ons regarding l Non-ina6onary goods. IDR4.3tn Bankruptcy Seplement, Recording of Land & Building 2. Addi6onal relaxa6on of goods imported for export ac6vity l Basic infrastructure development: IDR7.2tn Rights and Recording of Land & Building Ownership l Implemen6ng higher decit for expansionary reason. The package is to be fully implemented by January 2014 Decit is revised from 1.7% to 2.4% 2013 Revised Budget October Policy Package December Policy Package June July August September October November December Subsidized Fuel Price Adjustment August Policy Package 2014 Budget Subsidized fuel prices increased by 44.4% Macroeconomic AssumpNon 2013 Revised Budget 2014 Budget per liter for gasoline and 22.2% per liter for Growth (%) 6.3 6.0 diesel Ina6on (%) 7.2 5.5 A. Policy to improve current account and exchange rate performance: Exchange Rate (IDR / US$) 9,600 10,500 l Increase mandatory level of biodiesel in diesel oil to reduce oil imports Interest Rate (SPN 3 months) (%) 5.0 5.5 ICP (US$ / barrel) 108 105 l Addi6onal luxury tax on luxury cars and branded products Oil and gas Liqing l Increase mineral exports by relaxing procedures related to quotas and Clean & Clear a. Oil Liqing (MBCD) 840 870 B. Provision of incen6ves to maintain economic growth and peoples purchasing power b. Gas Liqing (MBOEPD) 1,240 1,240 l Deduc6on / deferring of income tax for specic industries l Improve tax holidays & tax allowance provisions 2014 Key Government Policies C. Policy to curb ina6on l Government capital expenditure to support economic growth l Improve the meat and hor6culture trade system to sa6sfy demand l Support of infrastructure development guarantees D. Policy to promote investment l Government incen6ves with respect to investments l Streamline permit process and improve the Na6onal Single Window for Investment (NSWi) service l Price stabiliza6on policies to maintain purchasing power l Accelerate the revision of the Presiden6al Decree pertaining to the Nega6ve Investment List (DNI) l Improvements to the Nega6ve Investment List (DNI) l De-bopleneck problems in strategic investment projects l Increase produc6vity through incen6ves for R&D ac6vity and training as well as Social Security and Labor Policy Ministry of Finance 20

21 Central Bank (BI) has also issued some monetary policies Aug 23, 2013 Aug 29, 2013 l Extension of FX TD maturity l BI Rate h by 50bps to 7.00%, DF l Relaxa6on of FX purchasing by Rate h by 50bps to 5.25%, LF Rate h Oct 8, 2013 exporter selling export proceed by 25bps to 7.00% l Maintain BI Rate at l Revision of regula6on regarding FX l Shorten MHP of SBI from 6 months 7.25% Dec 13, 2013 Swap transac6on between to 1 month l Establish a bilateral commercial banks and BI l Calcula6ng SDBI as part of Sharia KRW/IDR swap l Expand BSA l Relaxa6on of regula6on regarding Reserve Requirement (GWMS) arrangement worth between BI and BoJ Jun 11, 2013 Jul 18, 2013 external debt l Extend BSA between BI and BoJ to US$22.76bn US$10bn l Issuance of Bank Indonesia Deposit worth US$12bn l Deposit Facility (DF) Rate h by l FX Swap ini6al oering Cer6cate (SDBI) 25bps to 4.25% June July August September October November December Jun 13, 2013 Jul 11, 2013 Aug 15, 2013 Sep 12, 2013 Oct 1, 2013 Nov 12, 2013 l BI Rate h by 25bps to 6.00% l BI Rate h by 50bps to 6.5%, DF l Maintain BI rate at 6.5% l BI Rate h by 25bps l Extend BSA l BI Rate h by 25bps maintaining DF Rate at 4.25% Rate h by 50bps to 4.75% and l Issuance of SDBI to 7.25%, DF Rate h between BI and BoC to 7.50%, DF Rate h and Lending Facility (LF) Rate maintain LF Rate at 6.75% l Rising Reserve Requirement (RR) and LDR to 78% - 92% (starNng on Dec 1, by 25bps to 5.5% worth US$15bn by 25bps to 5.75% at 6.75% l Revising regulaNon regarding 2013) and maintain LF and LF Rate to LTV for property sector l Rising GWMS by 1.5% (gradual increase by 0.5% each month un6l Dec 1, 2013) Rate at 7.25% 7.50% l Supervisory acNon to banks with credit growth >20% l Extending BSA with Japan Source: Bank Indonesia Supported by a Comfortable Foreign Exchange Reserve Pre-EmpNve and Bold Measures in Policy Rate to help Drive Cushion Down Current Account Decit Source: Bank Indonesia Ministry of Finance 21

22 Some Results of Recent IniNaNves

23 Recent IniNaNves have so far shown some promising results Surplus Trade Balance in November Highest Rebounding Financial Account InaNon StabilizaNon Following Fuel Price in 20 Months Capital Flows Adjustment Policy (US$mm) (US$mm) 16.7% 11.8% 8.6% 8.8% 8.4% 8.3% 8.4% 8.4% 776.8 5.0% 2010 2011 2012 2013 2011 2012 2013 Source: BPS Source: Bank Indonesia Source: Bank Indonesia StabilizaNon of Onshore Yields StabilizaNon of Foreign Exchange Market (IDR tn) Yield (%) (IDR/US$) Convergence between oshore NDF and spot rate 12,269 DMO buyback DMO buyback 10 June 2013 20 June 2013 12,220 DMO buyback 13 June 2013 BI buyback 12 June 2013 Source: Bank Indonesia, Bloomberg Source: Bank Indonesia Ministry of Finance 23

24 Outlook of 2013/2014 Current Account Decit and short term policy direcNon With the issuance of policy measures by the government and BI as well as beper global economic condi6on, the 2013 CAD is es6mated to be 3.3%-3.6% of GDP and for 2014 will be 2.5% - 3.0% of GDP. Short term 2014 policies in pipeline : Trade Account Decit improving the fuel subsidy through price adjustments or applying the xed subsidy policy, and controlling fuel consump6on through (i) fuel restric6on/ra6oning policy, (ii) implemen6ng gas-fuel conversion program, (iii) and encouraging the use of alterna6ve energy the mandatory level of biodiesel policy in diesel fuel Service Account Decit merging a number of insurance SOEs to create a more powerful and well capitalized local insurance company Income Account Decit providing tax incen6ve for companies that reinvest their prot (retained earnings) in Indonesia Up side risks the raw (ore) minerals export ban policy In the short term, this policy may increase the trade balance decit, but in the medium/long term, it is expected to increase the value of export Ministry of Finance 24

25 Medium Term Challenges and Policy DirecNon: ConNnuous Structural Reform

26 Medium Term Development Challenges Decreasing in oil liGing and external demand Risks from global and major trading partner Increasing trend of oil and gas import to support uncertainty investment acNviNes Liquidity pressures Global The widening of trade balance decits Price volaNlity Current Account Challenges Decits Current account decits and exchange rates pressures DomesNc Economy performances below its potenNal growth RelaNvely high foreign ownership vurnerable to negaNve senNments and sudden reversal risks ProducNon capaciNes constraint Private sectors foreign debt is increasing as a result DomesNc Supply bovleneck of nancing needs debt risks increases Financial Capacity OverheaNng risks Stability RegulaNon frameworks to encounter these issues. Import dependency capital goods and raw Limited scal space too much mandatory pending materials Narrowed tax base CommodiNes export price volaNlity Quality spending Economic Food and energy security Resiliency SensiNve to external shocks Fiscal Large porNon of energy subsidy. Infrastructure faciliNes (energy, roads and port) Human resources capacity Poverty Technology and innovaNon Unemployment Global Bureaucracy systems and procedures, and Inequality Other Relevant CompeNNveness interlinkage regulaNons Issues Health and educaNon faciliNes Ministry of Finance 26

27 Medium Term Policy DirecNons Strengthening domesNc economy Increase produc6vity Increase domes6c goods compe66veness Improve ins6tu6onal capacity and human resources quality Maintain macro stability and scal sustainability Assure food and energy security Increasing producNon capacity and managing supply sides Improve investment climate Increase na6onal produc6on capacity Improve infrastrcutures facili6es Support development of technology and innova6on Enhance nancial deepening and nancial inclusion Reducing poverty and improving income disNbuNon Improve health and educa6on facili6es Improve nancial support for SMEs Provide social security for all people Ministry of Finance 27

28 Ministry of Finance

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