Indonesia's competitiveness has significantly declined, based on the World Competitiveness Ranking (WCR) 2025 released by the Institute for Management Development (IMD). The country plummeted in the rankings from 27th to 40th place. With only 69 countries assessed in the survey, Indonesia now finds itself in the lower half of the list.

This year’s results erase the positive trajectory Indonesia had experienced over the past two years. The country had reached its best competitiveness ranking just last year, while the worst was in 2022 at position 44.

The IMD report evaluates competitiveness across 330 indicators. It focuses on five key economic aspects: domestic economy, international trade, foreign investment, employment, and pricing.

Indonesia received particularly low scores in the areas of foreign investment and pricing. In terms of pricing, Indonesia’s rank slipped from 12 to 16. In foreign investment, the country fell sharply from 6th to 42nd place.

Bhima Yudhistira, Director of the Center of Economic and Law Studies (CELIOS), attributes the drop in competitiveness to a lack of focus in the new government’s policies.

He specifically questioned the budget efficiency measures taken under President Prabowo Subianto, saying they do not appear to support faster licensing processes.

“Our government efficiency ranking dropped to 23. So what’s the point of budget efficiency if it doesn’t lead to better services? In countries like Vietnam, such efficiency is used to streamline licensing,” Bhima told CNNIndonesia.com on Wednesday (June 25).

This lack of clarity in policy direction is also believed to be a reason behind the dramatic fall in foreign investment rankings. Bhima noted that the drastic shift in priorities from the Jokowi administration to Prabowo's has driven investors away.

During Jokowi’s term, infrastructure development and downstream industrial projects successfully attracted investment. But now, the focus has shifted to food security and the defense industry.

“This change in policy direction alters investor confidence, especially with policies changing rapidly and frequently,” he added.

Ronny Sasmita, Senior Analyst at the Indonesia Strategic and Economic Action Institution, echoed these concerns. He stated that the inconsistency in government policy is a core issue behind the decline in competitiveness.

“From a fiscal perspective, many government policies are burdening the national budget and increasing debt risk. At the same time, there’s no serious effort to improve the country’s tax ratio,” Ronny said.

⚠️ Risks

Bhima warned of the risks associated with declining competitiveness, particularly the loss of potential investment opportunities.

In today’s volatile global climate, investors are actively looking for safe places to relocate capital and factories to avoid geopolitical conflicts.

“If our competitiveness continues to decline significantly, it will result in missed opportunities. Investors will choose other countries for relocation, which will negatively affect job creation,” Bhima explained.

Meanwhile, Andry Satrio Nugroho, Head of the Industry, Trade, and Investment Division at INDEF, pointed to the country’s weak human capital as a long-term threat.

The IMD report highlights the low number of Indonesians working in research and development, as well as poor student performance based on PISA (Programme for International Student Assessment) scores.

It also noted the low proportion of Indonesians completing higher education. Andry linked this to Indonesia’s approaching demographic bonus.

“The demographic bonus in 2040 is fast approaching. Without a comprehensive overhaul and significant transformation, we’ll bear the burden instead. Many in the future workforce will be unemployed due to low skill levels,” said Andry.

He urged the government to respond to the IMD report with short-, medium-, and long-term action plans.

Among the suggested policies are improvements in educational infrastructure and long-term reforms to align the education system with industry needs.

Such efforts are crucial not only for improving competitiveness scores but also for reassuring potential investors.

“Foreign investors look at these types of reports to assess a country’s readiness—especially its human capital competitiveness,” he stated.

“The government must respond to the IMD report swiftly. Otherwise, the perception will be that Indonesia is truly not competitive,” Andry concluded.