"We apologize, the reality is that Indonesia's economy is getting worse."

Indonesia's economy in 2024 turns out to be not as bright as planned. This is quite disappointing considering the many positive sentiments and political moments that should have supported stronger economic growth.

On this day, Wednesday (05/02/2025), the Central Statistics Agency (BPS) released data on Indonesia's economic growth in the fourth quarter of 2024 (year on year/yoy) which grew by 5.02%. For the full year (2024), the economy only grew by 5.03%. This growth was driven by household consumption and investment.

Indonesia's economic growth in 2024 is the lowest in the last three years. This growth is also far below the government's target in the 2024 State Budget of 5.2%.

"Acting Head of the Central Statistics Agency Amalia Adininggar Widyasanti stated that the expenditure component that contributes significantly to GDP is household consumption (HC) with a contribution of 53.71% growing by 4.98%. Then, gross fixed capital formation (GFCF) or investment recorded a contribution of 30.12% with a growth rate of 5.03%."

"If we look at the sources of growth in the fourth quarter of 2024, household consumption remains a source of growth on the expenditure side, which is 2.62%," said Amalia at the BPS press conference on Wednesday (February 5, 2025).

Indonesia's economic growth in 2024 is expected to grow around 5%, but upon closer inspection, this condition is not entirely good because in 2024 there will be a presidential election (pilpres) at the beginning of the year, followed by a regional head election (pilkada) at the end of the year.

Therefore, there is a great hope that with this important moment and the hope to significantly increase public consumption, which will lead to high economic growth in Indonesia, is very large. However, fate says otherwise.

"It is noted that Indonesia's economic growth for the full year in 2022 and 2023 was recorded to be higher compared to 2024, at 5.31% and 5.05% respectively."

The following are several factors that are expected to drive Indonesia's economic growth in 2024.

Presidential Election February 2024

Wednesday, February 14, 2024, is the date that Indonesia will hold the General Election (Pemilu). To elect the President and Vice President, the House of Representatives (DPR), provincial and regency/city Regional Representative Councils (DPRD), and the Regional Representative Council (DPD) for the 2024-2029 term.

The democratic festivity is highly expected to be able to drive the Indonesian economy, especially in terms of consumer spending. This is considering the large amount of funds allocated for various activities during the campaign and the election process.

Previously, Finance Minister Sri Mulyani Indrawati explained that for the year 2024, the government has budgeted a total of Rp 38.3 trillion for the organization of the 2024 elections. Of that amount, the realized budget is Rp 26 trillion or 67.9%. This means there is a remaining budget of Rp 12.3 trillion that was not used because the elections have been completed (one round has finished).

"This means that almost 70% has already been spent because the elections in February require upfront spending," said Sri Mulyani in the APBN Kita release, Friday, (April 26, 2024).

Sri Mulyani outlined the largest expenditures made by the General Election Commission (KPU) and the Election Supervisory Body (Bawaslu). The budget used by these institutions amounts to Rp 23.8 trillion. The budget is used, among other things, for voting and vote counting, as well as honoraria for adhoc bodies.

In addition, expenditures for the elections are also made by 14 ministries and other agencies, such as the National Police. The amount of budget used is Rp 2.2 trillion. This budget is used for election security needs to the services for reporting ethical violations.

Furthermore, government spending grew by 18% in January-March 2024, reaching Rp 611.9 trillion. The surge in spending is partly due to an increase in social spending and election needs.

The Ministry of Finance recorded social spending reaching Rp 43.3 trillion or an increase of 20.7%.
Expenditure on recorded goods reached Rp 80.6 trillion or soared 38.9%. Election spending hit Rp 26 trillion while employee spending surged 42.8% to Rp 70.7 trillion.

The increase in social assistance is due to the increase in budget allocation for mitigating the impact of El Nino, while employee spending for the payment of the 14th salary for civil servants is in the form of holiday allowances.

November 2024 Regional Election

The General Election Commission (KPU) has set November 27, 2024, as the date for the Regional Head Election (Pilkada). The KPU has also determined the campaign period from September 25 to November 25, 2024.

Economic Policy Analyst of the Indonesian Employers Association (APINDO), Ajib Hamdani hopes that the momentum of the campaign and the 2024 Regional Elections will serve as an opportunity to boost consumption.

It is hoped that the increase in government spending absorption at the end of the year and the transition phase of the government from Jokowi to Prabowo can further stimulate the Indonesian economy.

Meanwhile, the Executive Director of Core Indonesia, Mohammad Faisal, stated that campaign spending and regional elections will greatly assist the national economy in Q4-2024. Where, activities outside of government spending during the campaign are expected to be larger, thus able to drive related economic sectors.

Social Assistance (Bansos)

The Ministry of Finance (Kemenkeu) recorded government spending in the field of social protection (Perlinsos) at Rp 455.9 trillion throughout 2024. This was conveyed by Finance Minister Sri Mulyani Indrawati in the presentation of the 2024 State Budget on Monday (January 6, 2024).

"Of that total, it increased by 4.51% compared to the previous year, which was Rp 436.2 trillion. Furthermore, the total PKH in 2024 is utilized for the Family Hope Program (PKH) for disabilities, PKH for school children, PKH for disabilities, disaster attention, KUR interest subsidies, food card, PBI JKN, and 3 Kg LPG subsidies."

"In the field of social welfare, Rp 455.9 trillion is allocated, considering that from Rp 436.2 trillion there are elderly PKH, disability PKH, school children PKH, as well as attention for children and orphans, attention for disaster victims, and safe and non-natural disaster management," he explained.

"If broken down, PKH includes purchasing power, access to health and education services received by 10 million beneficiary families (KPM) with amounts of Rp 900 thousand and Rp 3 million per family, depending on the receipt of the budget benefits."

Government Spending Reaches Rp3,350 Trillion

The Ministry of Finance has allocated a state spending budget of Rp 3,350.3 trillion throughout 2024. The value of state spending is 100.8% of the spending target outlined in the 2024 State Budget (APBN) amounting to Rp 3,325.1 trillion.

"From the total state expenditure in the 2024 budget year, there are several expenditure items specifically designated for benefits that are directly received by the community. Among them are expenditures for the health sector, education, and social protection or Perlinsos."

"This is the direct benefit received by the community through the state budget (APBN) that is being implemented," said Deputy Minister of Finance Suahasil Nazara during a press conference at the Ministry of Finance Headquarters, Jakarta, Tuesday (January 7, 2025).

The state budget for 2024 is growing by 7.3% year-on-year compared to the previous period of Rp3,121.2 trillion.

The size of this state budget is expected to be a driver of Indonesia's economy, but in reality, despite a budget of thousands of trillion rupiah, Indonesia's economy is not growing as fast as expected.

"As information, since 2022, the realization of Indonesia's economic growth has always been below the set target. This is not without reason, especially in 2024 when the manufacturing activity contracted for five consecutive months, massive layoffs (PHK) occurred in various regions in Indonesia, and food prices tended to rise."

Government Consumption Boosted

Throughout 2024, it is evident that government consumption is being significantly boosted, showing a growth rate of 6.61% for the government consumption expenditure component.

This figure is much higher compared to previous years, and it is even well above the average growth over the last 11 years, which is recorded at 2.59%.

"When compared to 2019 and 2014 (the moment of the presidential election), the figures for government consumption expenditure were recorded at 3.25% and 1.98%, respectively."

This shows that the government last year really allocated funds in amounts that were much larger.

Source: CNBC Indonesia

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