JAKARTA (TheInsiderStories) – The The Indonesian government is optimistic that economic growth in 2018 could be in the range of 5.4 percent, said President Joko Widodo in his speech at the parliament on Wednesday (16/8). Economist sees the economic growth target is very hard to achieve.
Based on the Draft of State Budget for 2018, government will spend more aggressively with total amount Rp 2,204 trillion, or rose by 5.02 percent from this year target of Rp 2,133.3 trillion. On the revenues side, the Government rises the target by 8.2 percent to Rp 1,878.4 trillion, compared to 2017’s target of Rp 1,736.1 trillion.
Hence, the state budget deficit narrowed to Rp 325.9 trillion or 2.19 percent to growth domestic product (GDP), compared to this year target of 2.92 percent to GDP.
Is it reasonable to reach Rp 14,300 trillion amount of GDP next year from this year target of Rp 13,500 trillion?
If we look at the budget posture in the draft of State Budget for 2018 is quite conservative. Ministry of Finance said that on the spending side, government want to improve equality through subsidy programs.
This include energy subsidies, where they want to allocate a budget of Rp 103.7 trillion, up 15.4 percent compared to this year’s allocation. While the non-energy subsidy is projected to amount to Rp 69 trillion, down 12.6% compared to this year’s allocation.
Meanwhile, the infrastructure spending is budgeted at Rp 409 trillion, one of them to carry out development along the 856 kilometers of new roads and irrigation along 781 kilometers. In addition, he also plans to improve access to education, health and other basic facilities through the construction and rehabilitation of 61.2 thousand classrooms, the construction of waste water sanitation to 853 thousand families, and the construction of flats as many as 7,062 units for low-income people.
Central government spending worth of Rp 1,443.3 trillion, or rose 76.3 trillion, 5.6 percent higher compared to the budgeted of 2017. It consists of central government spending over the budget of the Ministry and Institutions Rp 814.1 trillion, and spending non ministry Rp 629.3 trillion, one of them is debt interest payments and subsidies to Rp 231.3 trillion from Rp 172.4 trillion last year.
In addition, the transfer to the regions is planned only Rp 701.1 trillion,dropped to Rp 5.2 trillion, or 0.7 percent compared to this year’s allocation. While the village fund planned stay Rp 60 trillion. Widodo hope the allocation can be used to improve the quality of local public services, create employment opportunities, alleviate poverty and reduce inequality between regions.
The 2018 State Budget preparation done by referring to two main policies. First, encourage the optimization of state revenue through increased tax rate as well as the management of natural resources and state assets. Second, the policy of sustainability and efficiency of financing, which is done through the control of the deficit and the debt ratio, primary balance deficit declining. Then the development of creative financing, such as through a scheme of Government Cooperation with Enterprises.
Economist Chatib Basri see 2018 State Budget is realistic towards conservative. It reflects fiscal consolidation after in the last 2015 and 2016 government set very ambitious target. Though its reflects credible budget. Yet 5.4 percent growth of GDP is not that easy.
“Tax target rose by 9 percent, primary deficit dip 45 percent as well as spending rose 5 percent mostly for social family program,” he said.
Meanwhile, Indonesian Central Bank see government vows on GDP growth of 5.4 percent next year was in line with Bank Indonesia target and considerably realistic target. Central bank see Indonesian GDP next year can reach BI’s target range of 5.1 percent until 5.5 percent or about 5.3 percent amid strong growth on government capital expenditures, export, banking sector as well as monetary easing, Perry Warjiyo, Deputy Governor of central bank told The Insider Stories.
According to him, additional government capex spending through infrastructure program this year will trigger more private investment in both building investment as well as non-building investment. Moreover, this infrastructure spending will generate more productivity in the next few years. Government has spurs infrastructure development to create better land, air and maritime access means that Indonesia will have better connectivity and productivity in the upcoming years.
On the 2018 State Budget Draft, the budget of infrastructure spending reached 18.56 percent of total spending or about Rp409 trillion. This will be channeled through ministries of Rp161.2 trillion and the regional governments of Rp182.8 trillion. The ministry that get the largest allocation is Minister of Public Works and Human Settlements of Rp104.2 trillion or 25 percent of total spending.
Meanwhile, the regional government get more infrastructure fund than the ministries. The central government set condition that all regional government must allocate at least or 25 percent of general transfer fund for infrastructure so it projected to reached Rp120.9 trillion.
In addition, Perry expect Indonesian export will continues its positive path, where since last 4Q 2016 Indonesian export rebound to positive territory. According to him, world economic growth outlook in 2018 getting better, and expected to reach 3.5 percent until 3.6 percent. In line with better world outlook, Indonesian export to the world, namely United Stated for manufacture products and China as well as India for primary commodity products will increase.
Despite moderation in recent China growth, they GDP growth still reach 6.9 percent in the 2Q 2017 following faster manufacturing production while United States GDP growth reach 2.6 percent in the 2Q 2017 following rapid consumer spending acceleration. “What we concern about US is that feds plan to shrink their balance sheet that will trigger interest rate on the global financial market,” he said.
And the third economic growth engine next year, according to him is better banking sector performances. Next year, banking consolidation is expected to be over. Central bank work with financial service authority to accelerate consolidation process in the banking sectors. Banking sector is expected to aggressively cut credit rate and push credit supply. As end of July, credit growth only reach 8.8 percent, including working capital credit growth of 10.9 percent, investment credit 9.5 percent. He expect credit growth will reach around 13 percent next year from this year estimation of 11 percent. (EV/RF/YW)