Despite Deviations Indonesia Won't Revise the 2018 State Budget

The biggest consideration is that the 2018 State budget remains in a healthy condition. While previously Indonesia's budget deficit was estimated at IDR 325 trillion (approx. USD $22.7 billion) or equivalent to 2.19 percent of the nation's gross domestic product (GDP), a new estimate puts the budget deficit at IDR 314 trillion, equivalent to 2.12 percent of GDP (based on Indonesian law the government's budget deficit is not allowed to reach beyond 3 percent of GDP).

Thus, Indrawati stated that - in terms of revenue and expenditure - the budget has remained in a healthy condition. In fact, the budget deficit may be smaller than initially targeted. Therefore, there is no need to revise the 2018 State Budget. On 13 July 2018 the Indonesian government will report this decision to Indonesia's House of Representatives (DPR).

In terms of government revenue, Indonesia initially targeted to collect IDR 1,894 trillion in 2018. However, the higher crude oil price (as well as good growth in tax revenue) is expected to push government revenue to IDR 1,903 trillion (approx. USD $133 billion) this year.

Meanwhile, government spending is expected to remain at a similar level. If we assume that around 95 percent of the total budget will indeed be spent before the year-end, then Indonesia's government expenditure is expected to reach IDR 2,217.4 trillion (approx. USD $155.0 billion), slightly below the initial target of IDR 2,220 trillion.

It is interesting to note that additional energy subsidies - needed because the government announced that no subsidized fuel and electricity rate hikes are planned until at least late-2019 (while energy prices have risen) - are not expected to impact negatively on the overall balance, reflected by a falling budget deficit.

The primary balance (which is government net borrowing or net lending excluding interest payments on consolidated government liabilities) is expected by the Indonesian government to show a deficit of IDR 64.8 trillion (approx. USD $4.5 billion), which is also smaller than the initial assumption of IDR 87.3 trillion.

Several items that deviate markedly from the government's assumptions in the 2018 State Budget are the rupiah exchange rate, the Indonesian crude oil price, and economic growth. The average rupiah exchange rate is still set at IDR 13,400 per US dollar in the 2018 State Budget. However, the actual average rate is estimated at IDR 14,200 per US dollar in the first half of 2018.

Meanwhile, in the 2018 State Budget the Indonesian crude oil price is set at USD $48 per barrel. However, strengthening international crude oil prices managed to push the average Indonesian crude oil price to USD $73 per barrel in the first half of 2018 (which means that the government can collect more revenue from oil and gas exports).

Lastly, the country's economic growth rate is targeted at 5.4 percent year-on-year (y/y) in the 2018 State Budget. However, considering Indonesia's Q1-2018 GDP growth figure only reached 5.06 percent (y/y), while the Q2 figure is not expected to show significant acceleration, the full-year 2018 GDP growth figure is expected to reach 5.2 percent (y/y).

State Budget of Indonesia:

	State Budget 2016 (Audited)	State Budget 2017 (Revised)	State Budget 2018 (Approved)
Revenue in IDR trillion	1,555.9	1,736.1	1,894.7
Tax Revenue in IDR trillion	1,285.0	1,472.7	1,618.1
Spending in IDR trillion	1,864.3	2,133.3	2,220.7
Budget Deficit % of GDP	2.49	2.92	2.19
GDP Growth annual % change	5.0	5.2	5.4
Inflation annual % change	3.0	4.3	3.5
Exchange Rate IDR/USD	13,307	13,400	13,500
3-Month Notes coupon (%)	5.7	5.2	5.3
Crude Oil Price in USD per barrel	40	45	48

^{Sources: Finance Ministry & Commission XI DPR}

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