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

JAKARTA (TheInsiderStories) – Indonesia’ government and House of Representatives have approved the economic growth this year will only reach 5.2 percent, lower than the 2019 state budget target of 5.3 percent. This projection is stated in the second half prognosis report (2H) of the 2019 State Budget that has been ratified.

“Determination of economic growth projections is seen from several contributing factors of economic growth. The government continues to monitor both demand and production. So, economic growth in 2019 is projected at 5.2 percent,” Finance Minister Sri Mulyani Indrawati said here on Monday (07/22).

In the report, economic growth in 2019 was to be 5.2 percent, same with 2H realization and higher than the 1H realization of 5.1 percent. But, the figure is lower than the 2019 State Budget target of 5.3 percent.

Furthermore, inflation was estimated to be 3.1 percent. The exchange rate of the US dollar is estimated to be at the level of Rp14,303 in 2H, 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.

Indrawati said the growth projections are seen from demand and production. From the demand side, especially domestic, consumption and investment are the pillars. He was quite sure that the demand factor was able to maintain and increase growth. However, from external factors, especially exports, will experience a very big challenge. In addition to being driven by competitiveness, the atmosphere of the global environment will certainly influence, she added.

While on the production side, the former World Bank Director said, the condition of Indonesia’s production capacity (output gap) was getting smaller. Therefore, efforts are needed to increase the capacity to meet the potential for future growth. In terms of both demand and production, the minister was assessed in order to increase investment in Indonesia.

One way to improve investment that is being carried out by the government includes improving the ease of doing business in Indonesia. In addition, making incentive policies that can support business and industry players. She also hopes that these efforts can encourage economic growth.

Previously, Bank Indonesia estimated economic growth this year to be below the midpoint of the range 5.0-5.4 percent. President Perry Warijiyo admitted the central bank will continue to take a policy mix with the government and related authorities to encourage the momentum of economic growth. Therefore, the bank decided to lower the 7-Day Reverse Repo Rate by 25 bps to 5.75 percent this month.

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.

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.

Then, 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