Fiscal spending is crucial for Indonesia's GDP growth outlook

While GDP growth is expected to tick higher to 5.2% in 2016, and probably to around 5.5% in 2017, President Widodo's target of 7% GDP growth by 2019 seems a stretch. That several members of the cabinet still talk about the 7% GDP growth with strong conviction is presumably an effort to boost confidence in the public, especially among business owners. 

Over-optimism could backfire though. Coming into 2015, the government had a series of lofty ambitions, which includes a doubling of infrastructure spending. As it turns out, realization of this year's budget has been extremely slow and it proves to drag sentiment even lower. 

The pace of fiscal spending remains crucial for GDP growth outlook in 2016. Government consumption growth is expected to tick up higher to 6.5% in 2016, from a projected 5.0% this year. It remains to be seen, however, if fiscal policy implementation can be further improved. Central government expenditure continues to spike only towards the year-end, making it less effective in supporting GDP growth momentum throughout the year.