The emergence of new COVID-19 variants is expected to weigh on Indonesia’s economic recovery and may cause the government to miss its target of growth between 4.5 and 5.3 percent this year.
The government reported on Monday that 24 cases involving new variants, including sub-variants of B.1.617, also known as the Indian variant, had been detected in the country, some as a result of local transmission and others as imported cases.
The new variants may prompt the government to tighten or prolong mobility restrictions if they lead to a surge in cases, limiting activities in the economy, lowering consumer and business confidence and thus slowing down the recovery, according to Faisal Rachman, an economist at state-owned Bank Mandiri, the second-largest lander in the country by asset value.
“The risk of economic growth being lower than the target range outlined by the government is [high] if the government cannot successfully control the new virus variants coming into Indonesia and amid public mobility especially during this mudik [exodus] season,” Faisal told The Jakarta Post in a text message on Monday.
The new variants emerged at a time when Indonesia’s economic growth increasingly inched toward positive territory, as it contracted by 0.74 percent year-on-year (yoy) in the January–March period, marking a less severe drop than in the previous quarters, according to data from Statistics Indonesia (BPS).
Financial intelligence firm Moody’s Analytics has forecast 7.94 percent annual growth for Indonesia’s economy in the April–June period even after accounting for the Ramadan social restrictions, partly due to the base effect, according to its May forecast.
Read also: Indonesia’s GDP forecast to recover in Q2 but downside risks loom The median forecast for Indonesia’s growth this year stands at 4.45 percent, based on the latest estimates from the World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB) and the Organization for Economic Cooperation and Development (OECD).
However, coupled with a slower global economic growth and weaker commodity prices, a severe tightening of mobility restrictions is estimated to lower the country’s growth to 3.1 percent this year and 3.8 percent next year, according to the World Bank’s estimate outlined in its December 2020 outlook.
Weaker recovery under tighter restrictions
Griffith University epidemiologist Dicky Budiman said the government might need to consider an option of imposing large-scale social restrictions (PSBB), first and foremost across Bali and Java, after Idul Fitri, for which millions usually travel back to their hometowns, to anticipate an expected surge in cases.
The government reported on Monday 4,891 new COVID-19 cases, continuing a downward trend since the mid-January peak in daily new cases. But the daily test positivity rate stood at 15 percent, three times higher than the threshold signifying sufficient testing according to World Health Organization (WHO) guidelines.
As of May 8, Indonesia recorded 13 cases involving the United Kingdom variant, 10 cases of Indian variants and one case of the B.1.351 variant. Most cases involving new variants were found in South Sumatra and South Kalimantan.
The UK’s Public Health England considers the B.1.617.2 variant a variant of concern, as it had been found to be at least as transmissible as the UK variant as of May 7.
The new, more transmissible variant has been linked to the recent surge in cases in India. Following the renewed outbreak in India, neighboring Malaysia, Japan, Thailand and Cambodia, among other countries, also recorded spikes in daily new COVID-19 cases, according to Our World in Data. Malaysia re-imposed a nationwide lockdown on May 12.
New coronavirus strains emerge
“The main concern therefore is that we need to quickly administer vaccines and keep renewing it every year or two,” Dicky told the Post in a phone interview on May 10.
As of Saturday, some 13.70 million people in Indonesia have received their first coronavirus vaccine dose and 8.92 million their final dose, accounting for 5 percent and 3.3 percent of the population, respectively.
A resurgence in COVID-19 cases is expected to hurt the economy, because it would hit not only household spending but also trade, if Indonesia’s key trading partners are also dealing with a renewed outbreak, according to Soniza Zhu, an associate economist at Moody’s Analytics.
A tightening of mobility restriction is expected to force the government to raise fiscal support, especially the healthcare stimulus and social protection, according to both Faisal and Zhu.
The government has allocated Rp 699.43 trillion (US$49.27 billion) for this year’s COVID-19 stimulus, higher by around one-fifth than the actualized recovery budget last year. As of April 16, the government had disbursed Rp 134.07 trillion of the funds.
But greater fiscal spending will weigh on the state budget, as the government seeks to gradually bring down the budget deficit to below the normal threshold of 3 percent of the country’s GDP. This year, the deficit is estimated to stand at 5.7 percent of the GDP.
“Wage and subsidy support has been an important cushion to the economy, but further fiscal stimulus is likely needed to lift lackluster domestic consumption,” Zhu told the Post in an e-mail on Tuesday.
“However, the government’s ability to do this is constrained by declining government revenues and the risk of heightened sovereign yields and capital outflows should the budget deficit grow unchecked.”
