Indonesia Falls to 40th in Global Competitiveness Rankings, Faces Structural Challenges

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JAKARTA, Investortrust.id – Indonesia has dropped 13 places in the 2025 IMD World Competitiveness Ranking, falling from 27th to 40th among 69 economies. The steep decline marks a reversal from the country’s post-pandemic momentum, which saw steady gains in previous years driven by commodity exports.

In the years following the COVID-19 crisis, Indonesia emerged as one of the top performers in global competitiveness, climbing from 44th in 2022 to 34th in 2023, and further to 27th in 2024. However, the 2025 report by the IMD World Competitiveness Center (WCC) signals a sharp deterioration in the country’s fundamentals.

Arturo Bris, Director of the IMD WCC, said the plunge was largely due to weakening perceptions among business executives and a regional downturn in Southeast Asia, exacerbated by global tariff conflicts that disproportionately impacted the region.

Survey data from over 6,000 executives worldwide, including 66% from Indonesia, highlighted limited economic opportunities, poor infrastructure, and a mismatch between workforce skills and available jobs as key drivers of dissatisfaction. Respondents also flagged rising unemployment and uneven development as persistent barriers to upward mobility.

According to Bris, several structural indicators contributed to the slide. Indonesia now ranks 62nd in education, 63rd in health and environment, and 51st in institutional effectiveness. The country’s economic performance, though supported by strong GDP growth per capita, continues to suffer from weak service exports and declining foreign investment, which pushed Indonesia’s international investment ranking down to 42nd from 36th.

Government efficiency also took a hit, with Indonesia falling from 25th to 51st. IMD noted issues such as inefficient cost structures, red tape in starting businesses, inadequate foreign exchange reserves per capita, and weak passport strength. Business efficiency dropped from 14th to 26th, impacted by barriers to financial access, low labor productivity, and limitations on foreign talent mobility.

Infrastructure emerged as the weakest pillar, particularly in technology. Indonesia’s broadband speed averaged just 28.9 Mbps, well below the global average of 138 Mbps. It also ranked near the bottom in education and health spending, as well as active patent registrations.

Not Alone

While Indonesia saw one of the steepest declines in this year’s rankings, it was not alone. Turkey also fell 13 places amid ongoing economic instability and a deepening currency crisis. Arturo Bris, Director of the IMD World Competitiveness Center, noted that Turkey’s macroeconomic turmoil had significantly undermined its global competitiveness.

In Southeast Asia, the picture was mixed. Thailand slipped five places to 30th, reflecting persistent concerns over political uncertainty and investment climate. Singapore, long considered a benchmark for the region, dropped one notch to rank second globally—still among the world’s most competitive economies, but signaling tighter margins at the top.

Conversely, Malaysia posted one of the strongest rebounds, jumping 11 positions to 23rd. Analysts attributed this to improved fiscal management and renewed investor confidence. The Philippines also moved up, albeit modestly, rising one spot to 51st.

Overall, the report suggests that geopolitical tensions, shifting supply chains, and domestic policy execution are becoming more decisive factors in determining national competitiveness.  

Capital Inflows Remain Strong

Despite the disappointing results, officials in Jakarta remain optimistic. Febrio Nathan Kacaribu, Director General for Economic and Fiscal Strategy at the Ministry of Finance, emphasized that Indonesia’s fundamentals remain solid. Speaking on Wednesday, June 19, he pointed to steady capital inflows as evidence that investor confidence had not faltered.

“We continue to see investment as the main engine for future growth. While challenges remain in areas like permits, supply chains, and infrastructure, the government is addressing these directly,” said Febrio, adding that household consumption still dominates GDP, but investment is closing the gap.

The government is counting on Danantara, the newly established state investment agency, to help unlock greater capital deployment. Finance Minister Sri Mulyani Indrawati previously stated that Danantara must be run professionally and with integrity, in line with President Prabowo Subianto’s mandate to modernize state-owned enterprises (SOEs) and enhance their competitiveness.

Speaking before Parliament in May, Sri Mulyani said Danantara was entrusted with operational restructuring of SOEs and improving investment quality. She expressed hope that better governance, transparency, and oversight mechanisms would allow SOEs to act as drivers of economic transformation.

Domestically, Danantara is seen as a key vehicle to accelerate infrastructure and industrial policy reforms, aiming to integrate strategies across the upstream and downstream sectors. According to LPEM FEB UI, IMD’s research partner in Indonesia, this integration is essential if the country is to regain lost ground in global competitiveness.

IMD’s 2025 index is based on four key components: economic performance, government efficiency, business efficiency, and infrastructure. Indonesia’s score declined in three of these, with only economic performance remaining stagnant. Without a coordinated push to improve digital infrastructure, governance, and workforce quality, analysts warn Indonesia could fall further behind in an increasingly competitive global economy.