Government projects economic growth of 5.5% in 2016, budget deficit at 2.1%

President Joko Widodo (4th from left in front line) and Vice President Jusuf Kalla (6th of left) stand in line for a photography session with leaders of the People’s Consultative Assembly (MPR), Regional Representative Council (DPD) and House of Representative (DPR) after delivering annual speech at the Parliament.

JAKARTA (TheInsiderStories) – The government projected an economic growth of 5.5 percent for 2016, lower than economic growth target set in the revised 2015 State Budget (APBNP) of 5.7 percent, but looks more upbeat given the present slowdown of economic growth.

The economic growth projection was revealed by President Joko Widodo when delivering an introduction speech, marking the opening of the deliberation of 2016 draft State Budget.

A number of economists recently has revised down 2015 economic growth estimation of below 5 percent this year given global slowdown and lower-than-expected economic growth in the first half of 2015, while the government has indicated of revising down the growth to 5.2 percent.

Indonesia’s gross domestic product (GDP) growth slowed down further to 4.67 percent in second quarter (Q2) of 2015, the lowest since 2009, compared to a growth of 4.72 percent recorded in January-March period. While the central bank, Bank Indonesia, remains upbeat that the country’s economy can still expand to above 5 percent this year. Bank Danamon still maintains full year growth forecast at 4.96 percent, though with downside risks as Indonesia still faces rising external uncertainties.

The President said the total value of the State expenditure of the draft 2016 State Budget is set at Rp2,121.3 trillion, comprised of Rp1,339.1 trillion of central government budget, covering expenditure of ministries and government agencies amounting to Rp780.4 trillion, expenditure of non-ministries/state agencies at Rp558.7 trillion and budget allocation to local governments and village funds amounting to Rp782.2 trillion.

The 2016 proposed total expenditure represents an increase of 7 percent compared to this year’s total expenditure, which is set in the revised 2015 State Budget of Rp 1,984.1 trillion.

Total revenues of the government is set at Rp1,848.1 trillion, comprised of tax revenues of Rp1,565.8 trillion, representing 84.7 percent of government revenues, while non-tax revenues reached Rp280.3 trillion and grants worth Rp2.0 trillion. The proposed tax revenues represent an increase of 14.5 percent from projected 2015 tax revenues set in the revised 2015 State Budget.

This resulted in a budget deficit of Rp273.2 trillion or 2.1 percent of Gross Domestic Product (GDP). “The 2016 Budget deficit will be financed from domestic financing worth Rp272.0 trillion and external Rp1.2 trillion,” President Joko Widodo said.

The inflation is projected at 4.7 percent compared to 5 percent in this year’s Revised State Budget and rupiah exchange rate is set at Rp13,400 to the US dollar compared to Rp12,500 in the revised State Budget 2015, reflecting an ambitious target given that the rupiah level has fallen to 13,800 on Thursday (Aug. 13).

Bank Indonesia Governor Agus Martowardojo said the rupiah assumption is reasonable given the global financial turbulence. During a discussion with the government in preparing the 2016 draft State Budget, both government and Bank Indonesia projected rupiah to be moving in a range of Rp13,000-13,400. “It can be understood if (the government) set rupiah exchange rate at Rp13,400, given the devaluation of Yuan,” he told reporters at the Parliament building.

The average of the government commercial paper (SPN) for three month is set at 5.5 percent compared to 6.2 percent set in the revised 2015 State Budget, oil price is set at US$60 per barrel, unchanged from this year’s assumption, while gas lifting is at 1,115 of oil equivalent per day (boepd) compared to 1,221 boepd this year and oil lifiting is set at 830,000 barrels per day (bpd) compared to 825,000 bpd set for this year.

The tax revenues represents an increase of 5.1 percent compared to this year’s target set in the revised State Budget, with tax ratio level of 13.25 percent.

Of the proposed expenditure, Rp313.5 trillion will be allocated for infrastructure and Rp121 trillion for energy subsidy.

The President added in 2016, the government will continue to improve fiscal room in order to give more flexibility in financing its infrastructure developments. This will be done by improving efficiency of subsidy, operational expenditure efficiency and controlling budgets. In addition, the government will also increase budget allocation to the productive sector of the economy, in particular infrastructure development as well as food and energy security.