The impact of the COVID-19 pandemic is still being felt this year and is predicted to continue next year, although not as bad as in 2020. Based on a report by the Indonesian Central Bureau of Statistics, the Indonesian economy grew by 3.5% in the third quarter of 2021, where the World Bank estimates it will reach 3.7% by the end of the year. The Indonesian government continued to strive to maintain economic growth, where as of November 2021, the inflation rate was 1.7%, far below the target of 3%, the depreciation of the rupiah was only -0.5% and the current account deficit was -0.8%.
Review of 2021
During 2021, the government support to overcome the negative impact of the pandemic through stimulus and incentives in many economic sectors has proven to accelerate the recovery of the Indonesian economic growth.
The government policies on economic digitalization have had a significant impact on the revival of the economy. The Indonesian people, with a majority being the youth, responded quickly to these policies.
The digitalization of Islamic finance in Indonesia is not only about a payment system but also includes opening an account in the Islamic financial sector and a Shariah securities transaction system.
This increases the efficiency of the business process, where opening an Islamic financial account only takes less than 30 minutes with low initial funds of less than US$10. Thus, the number of local investors increased significantly and beat the dominance of foreign investors, both in terms of ownership (53%) and transaction value (75%).
The Indonesian Islamic finance industry has launched new regulations on Islamic securities crowdfunding and Sukuk listing, a new Shariah stock index and the IDX [Indonesia Stock Exchange] Islamic website, to create sustainable growth.
With these new innovations, it is hoped that the market will be more liquid and have many investment product options for investors.
The Islamic finance market showed better performance, in line with increasing public understanding that encourages the growth of Islamic financial inclusion.
As of the third quarter of 2021, Indonesian Islamic finance increased by 16.6% and the Islamic capital market is still dominant with a 62% market share. Islamic investors increased by 20.3% with the transaction value increasing significantly by 183% year-on-year.
The Indonesian government is also consistent in continuing to support the development of environmental, social and governance (ESG)-based investment products. As in previous years, Indonesia consistently issued sovereign green Sukuk for the global market, green savings Sukuk and retail Waqf Sukuk for the local market in 2021.
Preview of 2022
In 2022, COVID-19 will still be a world problem, especially with the discovery of a new variant at the end of 2021 which raises concerns that the number of infected people will explode again.
However, assuming the number of people who have been vaccinated is increasing and many countries have started to find strategies to control its spread, there is little concern that the economy will be affected again.
The IMF predicts that the global economy will grow by around 4.9% in 2022, while Indonesia will grow even higher at 5.9%. This means that Indonesia will recover faster than the global economy.
Incentives and stimulus policies by the Indonesian government will continue next year, with a focus on some of the key sectors most affected. Likewise, macroeconomic indicators will continue to be closely guarded so as not to interfere with the ongoing recovery.
The development of the Halal ecosystem will be increasingly focused on with full support from the government and private institutions, both from the demand and supply sides. Bank Syariah Indonesia, the result of a merger of three state-owned Islamic banks, is expected to have completed internal consolidation so that it is ready to accelerate Islamic economic growth.
Likewise, the Indonesian Islamic capital market will continue to grow significantly, supported by innovations in digital-based market infrastructure.
The plan to establish a Shariah investment bank initiated by the National Committee for Islamic Economy and Finance (KNEKS), the conversion of several conventional financial institutions to Shariah and consistent government support for economic and financial digitalization,will be the main factors driving Shariah economic growth in 2022.
As the chair of the G20, Indonesia will further enhance ESG-based economic growth. The issuance of green-based Shariah securities will continue to be carried out, including the plan for the IDX to issue a green Shariah stock index which will be the basis for the issuance of green Shariah investment products.
Conclusion
2022 will still be a year full of challenges. Apart from still facing the potential of an increase in the number of people infected with COVID-19, Indonesia is also facing the challenge of economic growth which has yet to return to normal conditions. There is a lot of homework that must be done immediately so that the economy gets back on track.
The number of people who have been vaccinated is one of the factors that must be immediately resolved by the government. Encouraging an increase in public spending is another matter that must be resolved immediately because the Indonesian economy is demand-driven.
Collaboration between government institutions, the private sector and community organizations must continue to be improved to accelerate the inclusion of Islamic finance. Supported by the digitalization of the economy and Islamic finance, it is not impossible that Islamic economic growth in 2022 will be higher than expected.
Irwan Abdalloh is the head of the Islamic Capital Market Division at the Indonesia Stock Exchange. He can be contacted at [email protected]