Indonesia Revised Down Economic Growth to 5.12% from 5.30% in 2019

Indonesian Economic Ministers and Bank Indonesia Discussed the 2019 State Budget with Parliament on Tuesday (16/10) - Photo by Finance Ministry

JAKARTA (TheInsiderStories) – After revising the Rupiah assumption, Indonesian government also lowered the economic growth target in the 2019 state budget, to 5.12 per cent from previously 5.30 per cent. Finance Minister Sri Mulyani Indrawati attributed the lower projection of economic growth to the expected slower investment growth in 2019.

The minister explained the change in exchange rate and economic growth assumptions to anticipate global economic conditions. Previously, in discussing the macro assumptions of the state budget, the government had proposed the assumption of an exchange rate of Rp14,500 per dollar.

However, Indrawati said, Bank Indonesia saw an exchange rate range to move in the range of Rp14,800 to Rp15,200, making she feel the need to take the middle ground. “We propose to use the middle value in the middle number at Rp. 15,000 for the 2019 exchange rate,” the minister told the parliament member on Tuesday (16/10).

She continues, Indonesia needed to be aware of the dynamics of the global economy which was triggered by among others the United States (US) policy that raised interest rates, tightened US liquidity and trade wars between the United States and the People’s Republic of China.

She also seeing that the import increase was quite high above exports resulted in a deficit in the trade balance in August 2018. In addition, the results of the 2018 IMF-WB Annual Meeting in Bali recently indicated that global economic uncertainty would still occur in 2019 but with a more positive direction than this year.

Despite experiencing changes in exchange rate assumptions, the minister said this was not merely a negative impact. She explained that the depreciation of the Rupiah would slap the state revenues.

“Non-oil and gas taxation will not change in line with macroeconomic sensitivity,” Indrawati said.

She continued, that the subsidy posture also did not change. For example, the posture of diesel subsidies is still set at Rp2,000 per liter. For LPG volume allocation also did not change. The same thing also applies to electricity.

Based on the latest development, she continued, government also has plan to revise some macro assumptions like the exchange rate and the oil price benchmark. Government to set the Indonesian Crude Price (ICP) at $70 a barrel from first plan $53 per barrel but still reviewing the latest updates for Rupiah rate.

Indonesia’s average annual growth rate was 5.6 per cent in the period 2001-2012, equivalent to a GDP per capita of about $3,500. According to Indrawati, one of the efforts to boost economic growth is by prioritizing value-added economic sectors to make domestic markets more robust and to promote productivity.

Furthermore, the former World Bank’s chair said, the government will design the state budget with a deficit below than 2 percent, but enough to keep stimulating the economy. This year, she predicted the budget deficit 2.12 of the 2018’s GDP and next year around 1.8 percent.

On the spending side, Indrawati explained that president urged his ministers to sharpen the ministry and government institution spending. Based on the latest, she added, there are about Rp34,1 trillion (US$2.35 billion) from the initial indicative ceiling to be reallocated for priority spending like school facilities and vocational school.

Meanwhile, the government revenues is expect to rise 15 percent compared to this year target Rp1,894.7 trillion.

1H Realization

Indrawati has reported the realization of 2018’s State Budget in the first semester (1H) grew higher than the same period of last year with investment performance as the main driving force. The increase in investment activity is also in line with double-digit import growth driven by an increase in imports of capital goods for infrastructure supporting materials.

The realization of State revenues reached 44 percent of this year target or rose 16.04 percent compared to last year. The realization of tax revenue collected Rp653.49 trillion, non-tax revenues of Rp176.83 trillion and grants of Rp3.12 trillion or 40.39 percent, 64.20 percent and 260, respectively, or 70 percent of 2018’s target.

While, the realization of government spending in the 1H 2018 reached Rp944.01 trillion, or about 42.51 percent of the ceiling, an increase of 5.67 percent compared to the same period last year. The realization of the State expenditure includes Central Government Expenditures of Rp558.44 trillion and Transfers to Regional and Village Funds of Rp385.57 trillion.

The budget deficit in the 1H of 2018 recorded 0.75 percent to GDP or Rp110.56 trillion. In the same period the budget deficit in 2017 amounted to 1.29 percent to GDP or Rp175.1 trillion.

Although the budget is still experiencing a deficit, the primary balance until June of 2018 is still positive at Rp10.05 trillion compared to the same period in 2017 negative Rp68.25 trillion.

In line with the increasingly credible management of the state budget, in the 1H of 2018 there was a Remaining More Budget Financing Rp65.68 trillion.