There is increasing fear of inflation and recession or stagflation.
In Europe there is geopolitical tension, and energy and food crises. In Asia there is China’s slowdown.
There is interconnectivity among geographies and Indonesia is not immune to this.
In terms of inflation, we forecast that the policy rate of Bank Indonesia will go up to around 5% in the first quarter of 2023.
Headline inflation will be around 6-7% going into the first quarter of 2023.
Core inflation will be manageable, at around 4%, at the end of the year 2022 and it will go down later in 2023.
On the monetary front, Indonesia is quite manageable.
On the fiscal front Indonesia will go back to a deficit of 3% in 2023 and we are seeing a consecutive 28-month trade surplus because of strong growth in exports of crude palm oil, coal and commodities that offset some of the energy needs met through imports.
The banking sector in 2023 is going to be resilient.
The liquidity ratio is good, the capital ratio is around 25% and credit portfolio quality will be below 3% in terms of gross non-performing loans. Going into 2023 we are seeing quite a good outlook for the banking sector, even though we see an increasing interest rate.
We have seen initiatives taken by Bank Indonesia to create a blueprint for the financial payment system’s infrastructure through to 2025.
This is a big opportunity for Indonesia.
We are very excited about the opportunity because this is going to give us access to a 91m-strong unbanked population and around 63m micro-, small and medium-sized enterprises.
Bank Indonesia provided a fast, real-time payment system that is reliable and simple at an economic rate that was reduced from Rs6500 to Rs2500.
Environmental, social and governance (ESG) is an interesting space as well.
Indonesia is very committed.
We have participated in COP26 UN Conference on Climate Change with a set of commitments for Indonesia to reduce its carbon footprint by about 31.9% by 2030.
This creates opportunity for the private, public and financial sectors to cooperate in raising ESG financing.
The Financial Services Authority has developed a roadmap for sustainable finance including publicly listed companies.
We are seeing increasing appetite for investment in start-ups.
Indonesia has around 2000-plus start-ups, making it the country with the fifth-most amount of start-ups in the world.
This provides an opportunity for banks to connect investors with start-ups and facilitate capital flows.
We are seeing growth in education, logistics, insurance and health tech.
There is a growing diversity, even in the digital tech space.
The role of banks is to facilitate this flow of capital from interested investors towards start-ups, a role that will grow in the future.
