Indonesia Parliament Approves 2021 Budget to Seek 5% Growth

(Bloomberg) -- Indonesia’s parliament approved a state budget for 2021 that seeks to bring the economy back to 5% growth.

Lawmakers agreed to formalize the budget into law at a plenary meeting Tuesday. State spending is set at a record high 2.75 quadrillion rupiah ($185 billion) for next year, with the economic growth assumption set at 5% and the fiscal deficit seen at 5.7% of gross domestic product.

Next year’s projection will be supported by a recovery in domestic consumption as economic activity returns to “a new normal state,” as well as a rebound in the global economy, said Finance Minister Sri Mulyani Indrawati.

The decision to maintain next year’s growth target comes days after policy makers slashed the 2020 forecast, with the economy now expected to show its first annual contraction since the Asian financial crisis more than two decades ago. The world’s fourth-most populous nation is grappling with a worsening coronavirus outbreak that has already killed more than 10,000 people, while factories struggle to stay open and consumers steer clear of shops and restaurants.

The central bank will remain a standby buyer for as much as 25% of government debt through 2022, Governor Perry Warjiyo told parliament Monday. Bank Indonesia may also continue its “burden-sharing” program if the 397.56 trillion rupiah it allocated for this year isn’t fully realized, he said, without specifying if he’s referring to direct purchases of government bonds by the central bank.

Bank Indonesia and the Finance Ministry have repeatedly said the program to buy bonds directly from the government is a one-off move amid the pandemic. So far, the central bank has bought 183.48 trillion rupiah of bonds directly from the government.

©2020 Bloomberg L.P.