Indonesian deficit has potential to widened to 1.93 percent of gross domestic products (GDP) in 2019 from the initial target 1.84 percent of GDP - Photo by MoF Office

JAKARTA (TheInsiderStories) – Indonesian deficit has potential to widened to 1.93 percent of gross domestic products (GDP) in 2019, amid the shortfall of tax revenue will be greater than the previous government’ outlook, said the minister yesterday (09/25). Initially, the government set the budget deficit at 1.84 percent of GDP.

At the end of August, the ministry of finance reported the 2019 State Budget deficit stood at 1.24 percent of GDP. This figure is wider than the 2018 state budget deficit in the same period of 1.02 percent.

According to finance minister Sri Mulyani Indrawati the widening of deficit was due to the smaller revenue growth compared to spending driven by the ongoing weakening of the global economy. The shortfall of tax revenues is estimating Rp140.03 trillion in 2019.

“If the projection will experience an additional shortfall from our previous outlook, the consequence is that the deficit will be greater than 1.93% of GDP,” the minister told reporters yesterday.

The ministry noted until August the tax revenues was only Rp801.16 trillion (US$56.82 billion) or grew 0.21 percent in annual basis (YoY).
Indrawati acknowledged, that the challenge of tax revenue in the second semester will be even tougher amid the sentiment of the global economic.

“Economic pressures have begun to have an impact on domestic business activities,” said the former managing director of World Bank.

In the midst of the depressed economic situation, the minister ensured that the government continued to use the State Budget as a buffer instrument to anticipate deeper weakening. Although the deficit has the potential to be wider than the outlook, she said, government spending would not be suppressed.

In eight months, the ministry reported that the realization spending of ministries and institutions only reached 33.3 percent of the ceiling or Rp 63 trillion. Indrawati still optimistic the government’ spending could reached Rp173.35 trillion or 91.6 percent of the budgeted ceiling in the 2019 State Budget.

Previouly, the minister has revised her prediction on Indonesia’ economic growth in the second half (2H) of 2019 at 5.11 percent amid the widening deficit. With the assumption, she continued, by the end of this year, the economic growth closed at 5.08 percent compared to the outlook in the 2019′ State Budget set at 5.2 percent.

Indrawati said the projected growth in 2019 has been calculated on the global and domestic conditions, especially influenced by weakening public and government consumption. Public consumption was predicted grow only grow 4.97 to 5 percent, from initially projection around 5.33 percent.

The minister also saw investment in the second semester being rather difficult to predict. She rated, “This investment is the most tricky thing because we see that in the second semester with interest rates starting to decline there is also capital inflow.”

She hope that in the 2H of this year, the investment conditions become stronger, especially as the election season is over. Meanwhile, exports in the second semester are predicted to remain in the negative zone.

However, Indrawati said the government still included the outlook for Indonesia’ economic growth this year of 5.2 percent. This figure is an assumption for the basis for calculating the estimated several items in the 2019 APBN.

Furthermore, she rated at 2H the exchange rate of the US dollar is estimated to be at the level of Rp14,303, higher than 1H of 2019 at Rp14,197. The year-end exchange rate is estimated at an average of Rp14,250 over the Greenback. The three-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’ 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 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.

US$1=Rp14,100

by Linda Silaen, Email: linda.silaen@theinsiderstories.com