Indonesian Government Sees Deficit Widened to 2.92% in 2017

Photo by CMEA

JAKARTA (TheInsiderStories) – Indonesia’s government proposed the State Budget’s deficit in 2017 wider to that almost reaches of the legal limit at 2.92 percent of gross domestic product (GDP), said one senior official. The widening of the deficit due to increased spending and lower revenue.

By Indonesian law, the budget deficits of the central government in one year could not exceed 3 percent of GDP. The Government has finally sent the revised the state and budget for 2017 on Thursday (6/7) to adjust the current development.

Coordinating Minister for Economic Affairs, Darmin Nasution at hearing with Budget Committee of House of Representatives, explained the economic growth is revised to 5.2 percent from initial target 5.1 percent, inflation 4.3 percent from earlier 4 percent, interest rate for 3 month 5.2 percent from 5.5 percent, and the rupiah Rp13,400 per U.S dollar from Rp13,300.

Indonesian crude price is also revised to US$50 per barrel from $45. While oil lifting and gas lifting are maintained at 815,000 barrels per day and 1.15 million barrels per day respectively.

The revision on oil price would affect the budget for energy subsidy. The fuel price has ever reached Rp1,250 per liter. The Government has previous set the budget around Rp77.3 trillion for energy subsidy.

The improvement on infrastructure and investment would support the acceleration of economic growth. In the Q1, the economy grew 5.01 percent on the back of household consumption, government’s spending, investment, and export-import.

“We can say the current economic growth has been completely driven by all driving engines. By sector, the processing industry is the main driver, while export and import will help,” He said.

Furthermore, Darmin stated, that the budget deficit set on budget revision for this year expands to 2.92 percent over the GDP from previous targeted 2.4 percent of the GDP if there will be natural saving or such a cut on spending.

The central government spending for this year, He added, is revised up to Rp1,351.6 trillion from Rp 1,315.5 trillion. So far this year, the realized spending reaches Rp498.6 trillion or 37.9 percent of total spending target.

The state revenue target from tax is also revised. The Government targets tax shortfall by end this year to be less than Rp50 trillion. The growth target for tax revenue is revised to 12.9% from previous 16 percent, as it only posted a 9.6 percent growth in the first half (H1).

The tax revenues is targeted for Rp1,498.9 trillion this year, compared to Rp980.5 trillion in 2016. Tax revenue from non oil and gas is expected to decline 50 percent to Rp1,221.8 trillion.

President Joko Widodo issued the Presidential Instruction Number 4 Year 2017 regarding the efficiency on spending for ministries and state institutions. He wants the efficiency on spending for Rp16 trillion, from Rp237.1 trillion target of spending.

Meanwhile, the central bank of Indonesia (BI) also predict the economy to grow by 5.17 percent this year. supported by accelerating exports and investment performance as well as resilient household consumption. The growth is expected to improve in the third quarter of this year supported by private investment in non-building segment, especially construction sector. The lending for construction, part of

infrastructure, grew by 27.8 percent, higher than 26.8 percent growth by December last year. Nation-wide the outstanding lending for construction reached Rp45.8 trillion.

“The economic growth is influenced by the growth of household consumption, the growth of government spending, investment growth, and the growth of imported exports,” Agus Martowardojo, BI’s governor explained.

In addition, Darmin stressed it, the economic growth in 2017 is estimated to be better than the target of APBN 2017, which is 5.2 percent (y-o-y).

He further explained the main points of fiscal policy changes in the revised State Budget of 2017. About taxation, the expansion of tax base based on the declaration of tax amnesty program is expected to sustain the achievement of the tax target.

The targeted non-oil and gas tax revenues are adjusted to fall by Rp 50 trillion to be more realistic, in line with 2016 achievements and efforts in 2017. The proportion of natural resource revenues to total Non-Tax State Revenue decreased dramatically in 2015, but increased in 2017 due to the tendency of rising oil prices.

As for the Central Government Expenditure in 2017, the highest growth in the last four years. The realization of large 15 ministries and government institution expenditure in the first half of 2017 increased compared to the same period in 2016.

In addition, the minister said the increase in energy subsidies should be balanced with other programs for the protection of the poor and vulnerable, especially in education and health.

Darmin also explained the transfers funds to regions and village funds grew 7.0 percent from a year earlier. Changes in transfers to regions and village funds were primarily influenced by the decline in Net DNR revenue.

“In line with the widening deficit, Government Securities (net) is estimated to be around Rp 433.0 trillion or up Rp 33.0 trillion with the assumption that there is a natural savings,” Darmin continued. (RF)