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2 Reasons Why Indonesia’s Economy Could Grow Much Faster Than Singapore’s

The World Bank had recently released its October 2016 edition of the Indonesia Economic Quarterly (IEQ), titled, Pressures Easing. In the report, which goes through the state of Indonesia’s economy, the World Bank shared a few pillars that are supporting the growth of the country’s economy.

The World Bank’s latest projections are for Indonesia’s economy to expand at 5.1% in 2016. This compares favourably to Singapore’s expected economic growth rate of 1% to 2% this year.

Here are some of the pillars the World Bank shared in its report:

1. Higher tax revenue from tax amnesty

Indonesia’s government had rolled out a tax amnesty program in June this year that is scheduled to run till next March. The tax amnesty program has been highly successful so far and has already gathered IDR 93.4 trillion (around US$7 billion) in revenue for the Indonesian government in the first phase alone.

The revenue was higher than estimated. The World Bank thinks that the additional revenue is “expected to raise capital spending and hence have a positive impact on [Indonesia’s] growth.”

2. Effective social policies and plans for tourism growth

The better fiscal position of the Indonesia government is not the only pillar supporting growth for Indonesia.

The World Bank thinks it is possible that the Indonesian government’s policies that stabilised rice prices and expanded social assistance programs over the past few years have helped reduced Indonesia’s poverty rate by 0.4 percentage points in the first-quarter of 2016.

Indonesia is also looking to boost the appeal of its tourism sector by attracting US$10 billion in private investments for tourism by 2019. Data from the World Travel and Tourism council show that every US$1 million spent on tourism in Indonesia helps support 200 jobs and US$1.7 million in GDP (gross domestic product).

There are a number of stocks in Singapore’s market with heavy exposure to Indonesia’s economy and one of them is Lippo Malls Indonesia Retail Trust (SGX: D5IU), a real estate investment trust that owns retail malls and spaces in Indonesia. Since the start of the year, Lippo Malls Indonesia Retail Trust’s unit price has climbed by 22%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat owns units in Lippo Malls Indonesia Retail Trust.