Poverty and

distributional
impact of
Covid-19 Crisis
in Indonesia
Arief Anshory Yusuf
SDGs Center, Universitas Padjadjaran
http://sdgcenter.unpad.ac.id

Presented at How is COVID-19 changing development? WIDER Webinar

Series, UNU/WIDER, 12 May 2020
 • A brief update on the covid-19 pandemic in Indonesia
I will talk • Its impact on economic growth and policy responses
about • Translating economic growth into poverty impact: Accounting for
non-neutral distributional effect
By today, Indonesia officially report 12,438 case and 895 death
Yet, testing rate and its under-reporting is among the world’s lowest
There is still risk of catastrophic number of death
Number of death with different scenarios
1400000

1200000 1,157,729

1000000

800000 762,192
653,804
600000

400000 339,539

200000
58,302
0
Unmitigated Enhanced social Social distancing Supression - 1.6 Supression - 0.2
strategy distancing of elderly whole population deaths per 100,000 deaths per 100,000
(43%) (45%) per week trigger per week trigger

Source: MRC Centre for Global Infectious Disease Analysis, Imperial College London (March 2020)
Containment measures applied in selected regions in the form of
“large-scale social distancing”, a softer version of lockdown.

JAKARTA

INDONESIA INDIA

Source: Google Mobility Report

Economic growth in 2020 is projected to be -3.5 to
2.1% (Baseline is 5%). Recovery profile varies.

Institution Growth in 2020 Recovery path

Kementerian keuangan -0.4% sd 2.1% Not estimated

Oxford Economics 1.3% V-shaped

Bank Dunia -3.5% sd 2.1% Not estimated

IMF 0.5% V-shaped (2021 8.2%, 2 year)

Economist Intelligence Unit 1.0% U-shaped

Fiscal stimulus and
social assistance
• Increase budget deficit from 2.5 to 5.07% GDP
• Allocate Rp405 trillion ($27B/2.5%GDP) for
Covid-19 response
• Rp110T social assistance, Rp75T health
spending, Rp70T Industry support, Rp150T
economic recovery
• Social assistance
Close to 70% of Indonesian are poor or vulnerable. Among the highest in the region.

35.6 70.4 32.0 22.3 97.0 81.4 24.8 43.9 89.0 66.5

78 75
68
64
56

30 b 33

19
11
3

Source: World Bank (2018); Note: Economically secure > PPP2011$5.5/person/day

 Social assistance, given to the poor and vulnerable.

Source: Ministry of Finance

Impact on poverty (Previous estimates), 2019:9.22%

Lower bound Upper bound Method

Ministry of Finance* +0.44% +1.41% Unpublished

+1.16 M people +3.78 M people

Smeru** +0.56% +3.2% Growth +

+1.3 M people +8.4 M people 2005-2006 episode

World Bank* +0.75% +2.35% unpublished

+5.6 M people +9.6M people

Source: *) Presentation by Dr. Febrio Kacaribu, Head of Fiscal Policy Office, MoF; **) Smeru Research Institute
The shape of growth incidence curve (GIC) from Covid-19
crisis will depend on various factors
• Crisis will hit everyone. GIC will be all below zero.
• Lockdown effect will most likely predominantly urban. Agriculture may be hit less.
• Services, like transport/travel, will be hit hard but WFH may help. In Indonesia, services growth
tend to be income-inequalizing.
• Manufacturing, especially labor intensive, will be hit hardest. Urban poor, and national middle
class will be hit hard.
• Region and sectors heavily dependent on tourism is on the ‘natural’ lockdown that last longer.
Tourism has extensive repercussion effect. Its effect may be neutral.
• Lockdown is hard to enforced in informal sector, yet, informal activity sustain only on daily basis.
• Social safety net matters, yet fiscal space is limited.
• Indonesian geography is unique too.

Hard to verdict, but it may tend toward inequality reducing. Similar to 1997/98 financial crisis
in Indonesia.
 Analysis with Indonesian CGE model: Effect on
sectoral output from various channels

Source: Simulation with IndoTERM CGE model

Sectoral growth projection of 2020 (EIU)
February forecast

April forecast

-4.1% - GDP

Impact of COVID-19

-0.9% - Agriculture
-4.5% - Industry
-4.8% - Services
A “pragmatic” reduced-form expenditure per capita equation

Household expenditure per capita is a function of household head’s human capital, job characteristics, and
his/her labor supply

ln = + ℎ+∑ +∑ ( ℎ) + ∑ +∑ ( ℎ) + ⋯
⋯+ ∑ +∑ ( ℎ) + ∑ +

: monthly expenditure per capita

ℎ: hour of works in a month
: sector of employment (dummies)
: status of employment (dummies)
: skill level (dummies)
: area (urban/rural), number of family members, number of working family members, years of education, province-fixed effect
: error term

Estimated using 2019 National social economic survey (SUSENAS) data.

Sector-biased 4.1% reduction in growth (relative to
5.0% baseline growth) in 2020 (EIU, April 2020)

Agriculture-biased Industry-biased Service-biased

Source: Author’s estimation

Distributional impact of EIU 2020 forecast of -4.1%
reduction in growth with -1% in agriculture, -4.5% in
industry and -4.8% in services

sector-biased growth incidence The case of distribution-neutral

(based on EIU projection)
over-estimating poverty impact

distribution-neutral

sector-biased
baseline

Source: Author’s estimation

 Poverty impact of EIU 2020 projection on poverty
Distribution-neutral Sectoral-biased
With With
Baseline Change Baseline Change
Covid Covid
National poverty line Percent 9.2 10.6 1.3 9.2 10.2 0.9
M Population 24.6 28.2 3.6 24.6 27.1 2.5
PPP$1.9 Percent 2.0 2.7 0.7 2.0 2.4 0.4
M Population 5.3 7.1 1.8 5.3 6.4 1.0
PPP$3.2 Percent 17.2 19.2 2.0 17.2 18.8 1.5
M Population 46.0 51.4 5.4 46.0 50.2 4.1
PPP$5.5 Percent 48.68 51.11 2.43 48.68 50.77 2.10
M Population 130.0 136.5 6.5 130.0 135.6 5.6

Gini coefficient 0.382 0.382 0.00 0.382 0.378 -0.004

Source: Author’s estimation
Final remarks

• Indonesia is still struggling to mitigate the covid-19 pandemic.

Serious health/fatality risk remains.
• Due to high poverty vulnerability, not only that health system
is under-pressure, but the social safety net system is under
pressure. Past reform and progress in the improvement of the
social safety net system is currently under heavy test.
• Using national line, 2.5M people will become poor (Almost 3
years reduction). Using PPP$3.2 line, 4.1M people will become
poor.
• Distributional effect of Covid-19 economic crisis tend to
reduce inequality.
http://sdgcenter.unpad.ac.id

Thank you
Arief Anshory Yusuf
SDGs Center, Universitas Padjadjaran