The bank also projected a 4.5-percent economic growth for Indonesia for this year.
"Indonesia passed 2020 well thanks to a well coordinated and communicated crisis response and strong leadership in tackling the pandemic," ADB director for Indonesia, Winfried Wicklein, said in Jakarta on Wednesday.
Indonesia would return to its growth trajectory next year, driven by a sustainable trade recovery, a revival in the manufacturing sector, and a large national economic recovery budget for 2021, he added.
Household spending in Indonesia is expected to increase in 2021 as the vaccination program advances and more economic sectors resume operations, he elaborated.
Investment is expected to increase again with improving economic prospects, while the pace of recovery in financing or credit will still lag behind considering the uncertainty in investor sentiment, he said.
According to ADB estimates, inflation, which averaged 1.6 percent last year, will rise to 2.4 percent in 2021.
This inflation rate will still be within Bank Indonesia's target range as inflationary pressures due to currency depreciation and higher food demand will be partially offset by the decline in prices for goods set by the government, it said.
Furthermore, net exports supported by strong commodity exports will result in a current account deficit of 0.8 percent of Indonesia's gross domestic product (GDP) in 2021, according to the ADB.
As investment increases next year and volumes of imported capital goods, such as machinery and equipment, increase, Indonesia's current account deficit is expected to reach 1.3 percent of the GDP, it said.
Wicklein said there are several risks to this estimate, including disruptions to the global recovery due to the threat from coronavirus mutations, uneven vaccination rates in the world, and unexpected global financial tightening.
Meanwhile at home, economic recovery could slow if there is a spike in COVID-19 cases during the month of Ramadan, or on account of delays in vaccination efforts and weakening government revenues, he added.
Therefore, ADB has recommended that Indonesia mobilize domestic resources and ensure environmentally friendly economic development.
Meanwhile, excessive debt can be overcome by fiscal reform to broaden the tax base, improve tax administration and compliance, and close tax loopholes, it suggested.
"Also encouraging an environmentally friendly recovery will protect the environment and support economic growth and create jobs," Wicklein said. (INE)
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Translator: Atrid F, Azis Kurmala
Editor: Suharto
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