Indonesia Economic Briefing
- Late last week, the 2016 revised government budget has been submittedfor discussion with parliament. Key points of the draft include: 1) an aggressive target in revenue with tax amnesty priced in, 2) focus of infrastructure spending shifted towards electrification projects, and 3) widening budget deficit from 2.2% of GDP to 2.5% (realization as of Apr-16 at 1.2% deficit).
- The government expects tax revenue to grow by 23%vs the 8% average growth in the last 3 years. Our calculation indicates that the aim is for 12.0% tax ratio, quite aggressive compared to last year’s figure of 10.7%. This translates to around IDR 150tn gap in collection. Note that 4M16 revenue realization is already 10% lower than year ago level, partly due to declining oil price. Meanwhile, proceed from the tax amnesty program has been accounted through an increase of IDR 104tn in non-oil and gas income tax.
- A more positive story lies in the shift of focus to electrification projects, primarily through theadditional IDR 14tn capital injection for State Owned Electricity Company (PLN). This is on top of the original IDR 10tn from initial budget, yet to be disbursed. We estimate that it could lead to 1,070MW of power generation, assuming a base line investment costs and that the IDR 24tn is not partially use for debt repayment or transmission maintenance.
- Bond issuance upsized by IDR 58tn this year. We think this could be done mainly by pushing up global bond issuances close to its 30% limit, but should not rule-out LCY issuances given the downtrend in interest rates. However, if tax collection falters, then we can expect another spending cut in programs listed according to priority (infrastructure at the bottom).
Regards,
Wisnu Wardana | Economist
Treasury & Capital Markets | PT Bank Danamon Indonesia, Tbk.