Jakarta, May 9, 2023 – Indonesia can build on its impressive track-record of poverty reduction to tackle more ambitious poverty reduction targets. The country has made impressive gains in reducing poverty, with previously lagging regions catching up, essentially reaching the Government’s goal to eliminate extreme poverty by 2024.
With a sustained economic growth and social protection, Indonesia has lowered extreme poverty from 19 percent in 2002 to 1.5 percent in 2022, reveals the Indonesia Poverty Assessment: Pathways Towards Economic Security released today. Indonesia can now continue focusing its efforts to improve the lives of a larger part of the population, including economically insecure households by creating better opportunities and protecting Indonesians from staying in and falling into poverty.
Furthermore, despite a substantial increase from 2002 until 2010, inequality experienced a stagnation and had dropped from 2014 to 2019. Fiscal policies contributed to the reduction of poverty and inequality by around three points of the Gini coefficient – a measure used to indicate income inequality. However, pro-poor investments have been limited due to low government revenue collection and costly subsidies.
“Indonesia needs to scale up its social protection, including both social assistance and insurance, as well as financial inclusion while making resilience investments in infrastructure to mitigate the impact from future shocks,” said Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste. “Indonesia has good options within the current system to increase financing of more pro-poor investments.”
The report finds that around half of Indonesian women are excluded from the labor force and recommends that targeted policies could open opportunities for more women to join the labor force and contribute to country’s GDP growth. This includes policies for improving the quality and affordability of childcare and taking advantage of the country’s growing digital economy to unwrap opportunities and boost incomes.
Weather-related incidents, which occur regularly in Indonesia, often become the cause of economic shocks. Global climate change has caused a reduction to agricultural yields due to changes in precipitation, temperature, and extreme weather events. This report emphasizes the importance of investments in resilient infrastructure and climate-smart agricultural production to reduce harmful effects of natural disasters and limit shock devastation, particularly to the poor and economically insecure.
The report also includes recommendations on the improvement of sub-national administrative capacity to enhance the quality of spending, service delivery, and human capital, while attenuating geographic disparities. Improving the quality of subnational spending, in both allocative and technical efficiency, will better align sub-national governments’ resources, cover areas with higher poverty rates, thus minimizing geographic disparities and enhancing equality.
As an aspiring higher income country and to continue its poverty reduction endeavors, Indonesia can tackle these challenges in a sustainable and comprehensive manner including through efforts to reduce data and knowledge gaps to improve future policies.
