Indonesia's Finance Minister Sry Mulyani Indrawati - Photo: The Finance Ministry.

JAKARTA (TheInsiderStories) – Amid the widening deficit in the first half (1H) of 2019, Indonesia’ government remain optimistic and predicted economic growth in the second half (2H) to be at 5.2 percent, higher than the 1H realization of 5.1 percent. But, the figure is lower than the 2019 State Budget target of 5.3 percent.

In the 1H of 2019, state budget deficit worth of Rp136 trillion (US$9.7 billion), rose 22.5 percent from the same period in 2018 at Rp111 trillion. Its equivalent 0.84 percent of gross domestic products (GDP), higher than the same period last year of 0.75 percent.

“Amid global uncertainty, economic conditions up to the first semester of 2019 continue to show positive performance and are projected to continue until the end of 2019,” Finance Minister Sri Mulyani Indrawati said during a joint meeting of the House Budget Board in Jakarta, Tuesday (07/16) )

Indrawati said that in the 1H, economic growth was still driven by an increase in domestic demand. He explained that household consumption is projected to grow higher because of the support of low inflation and the distribution of social assistance that is on target and on time. As for the realization of the 1H, inflation was 3.3 percent and is estimated to be 3.1 percent in the second semester.

In addition to household consumption, the former World Bank Director said government consumption grew higher. Some factors that encourage the growth of government consumption include the increase in absorption and consumption patterns, among others, spending on holiday allowances, conducting elections, and implementing social assistance.

Furthermore, at 2H the exchange rate of the US dollar is estimated to be at the level of Rp14,303, higher than 1H of Rp14,197. The year-end exchange rate is estimated at an average of Rp14,250. The 3-month state treasury letter at 2H is 5.4 percent, the year-end outlook is 5.6 percent.

Indonesian oil prices are estimated at $63 per barrel at 2H. The outlook for the year-end is also $63 per barrel. Furthermore, oil lifting is projected at 753 thousand barrels per day and gas at 1,090 thousand barrels of oil equivalent per day in 2H 2019. At the end of 2019, oil lifting is projected at 754 thousand barrels per day and gas lifting of 1,072 thousand barrels of oil per day.

On the other hand, Indrawati said that the formation of gross fixed capital in the early semester of 2019 was relatively slow. This condition was caused by the increasing tension of trade wars which had an impact on slowing global investment. Even though domestic investment is still positive.

Global economic pressures also affect Indonesia’s foreign trade. In 1H 2019, the slowdown in the world economy and the increasing tension of protectionist policies and trade wars were called to cause exports and imports to contract, she added.

Thus, the 2019 state budget revenue and expenditure deficit are expected to widen from the government’s plan to Rp310.8 trillion or 1.93 percent of GDP. In fact, based on the 2019 State Budget Act, the budget deficit is set at Rp296 trillion or 1.84 percent of GDP.

The state budget’s deficit outlook, according to the minister, was made based on fiscal macro conditions this year. In detail, the deficit is caused by state revenues estimated at Rp2,030.8 trillion or 93.8 percent of GDP, which consists of tax revenues of Rp1,643.1 trillion and Rp386.3 trillion of non-tax state revenues.

Meanwhile, state expenditures are estimated to reach Rp2,341.6 trillion or 95.1 percent of GDP. When detailed, the expenditure consists of central government expenditure of Rp1,527.2 trillion and transfers to the area of Rp814.4 trillion.

Indrawati said the outlook for central government spending was 93.4 percent, with notes on ministry expenditures of 99.9 percent and lower fuel subsidies due to exchange rate and world oil prices, with fixed diesel subsidies of Rp2,000 per liter. Meanwhile, the number of transfers to the regions and village funds was 98.5 percent. With this figure, the primary balance was recorded at negative Rp34.7 trillion.

Based on the same data, the realization of 1H revenues was Rp. 898.8 trillion and state expenditure was Rp1,034.5 trillion. Thus a budget deficit of Rp135.8 trillion or 0.84 percent of GDP was achieved.

US$1=Rp14.000

Written by Lexy Nantu, Email: lexy@theinsiderstories.com

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