Indonesia to raise spending by 8.5% to 2,540t rupiah in 2020

• Sep 24, 2019

THE Indonesian government plans to spend 8.5 per cent more in 2020 than this year, following approval by a parliamentary committee of a budget a finance ministry official said is designed to anticipate global uncertainty.

On Monday, the committee – whose decision is expected to get approval by Parliament on Tuesday – endorsed President Joko Widodo’s plan to spend 2,540.4 trillion rupiah (S$248 billion) in 2020.

The budget, the first full-year one for Mr Joko’s second term, was fractionally bigger than his original proposals, but has the same fiscal deficit target of 1.76 per cent of gross domestic product (GDP). Mr Joko originally proposed a 2,528.8 trillion rupiah budget last month.

For 2019, a budget deficit of 1.93 per cent of GDP is expected. By law, Indonesia’s fiscal deficit cannot be above 3 per cent of GDP.

The budget plan sees revenue at 2,233.2 trillion rupiah, up almost 10 per cent from what the government expects to collect this year.

Earlier this month, the committee approved 5.3 per cent as the 2020 economic growth target – which some private economists think is too high.

It is higher than the central bank’s prediction of 5.1 per cent this year, which would be the first slowing in four years.

Citibank economist Helmi Arman called the 2020 budget deficit “credible”.

“It’s better in the longer term for the government to exercise prudent fiscal and monetary policies rather than running, for example, a higher budget deficit, but at some incremental cost to stability,” he said, noting high foreign ownership in the bond market.

Foreigners own nearly 40 per cent of Indonesian sovereign bonds, according to finance ministry’s data.

The government will issue 389.3 trillion rupiah of bonds, not including buybacks and short-term notes for cash management, to fund the budget deficit next year.

Suahasil Nazara, the finance ministry’s head of fiscal policy office, said the government has allocated social and infrastructure spending to counter the weakening trend and maintain growth momentum.

“When the global economy is coughing and unpredictable, other countries under high tensions and we could be impacted, the domestic economy must remain strong,” Mr Nazara told reporters adding that social spending should provide a cushion for domestic consumption. REUTERS