Indonesia’s Budget Deficit to Reach as High as 4.85% Next Year
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Indonesia could face a challenging road back to fiscal discipline as the government expects to keep spending heavily to support the economy next year.
The budget deficit is seen at 4.51%-4.85% of gross domestic product in 2022, equivalent to as much as 879.9 trillion rupiah ($60.8 billion), Finance Minister Sri Mulyani Indrawati said in a briefing on Thursday. That’s an improvement from the 5.7% of GDP expected this year, but still a long way from returning to its legal limit of 3% of GDP by 2023.
Fiscal policy will still focus on economic recovery in 2022, with spending continuing for priority programs, Indrawati said as she presented the latest estimates that will be discussed in parliament for approval. The government had lifted the budget deficit cap last year so it could pour money into stimulus programs and cushion the blow of the pandemic.
“We will continue to explore how to increase the tax base to improve revenue, as well as optimize state assets to generate dividends,” she said.
Investors are closely watching how governments unwind the extraordinary fiscal support they’ve provided during the pandemic, especially as developing nations across the world realize recovery could be more protracted than expected. Standard & Poor’s and Fitch Ratings have both recently affirmed Indonesia’s credit rating despite its budget deficit.
Next year’s budget gap estimate puts pressure on Indonesia to reduce spending significantly to rein in the shortfall by 2023, especially after cuts to corporate and other taxes weakened the revenue stream, according to Mohamed Faiz Nagutha, an economist with Bank of America Securities in Singapore.
“They’ve been exploring revenue reforms for years, but nothing significant has materialized yet,” Nagutha said. “Indonesia’s fiscal consolidation in the past had not been the healthy kind -- it has been driven predominantly by lower spending rather than by higher revenues.”
Other 2022 budget estimates:
- GDP growth: 5.4% to 6%
- State revenue: 1,823.5 trillion to 1,895.4 trillion rupiah
- Tax revenue: 1,499.3 trillion to 1,528.7 trillion rupiah
- State spending: 2,631.8 trillion to 2,775.3 trillion rupiah
- Budget deficit: 808.2 trillion to 879.9 trillion rupiah
- Debt ratio: 43.76% to 44.28% of GDP
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