Government of Indonesia Proposes to Revise Macroeconomic Assumptions
The government of Indonesia will submit a new draft proposal for the 2014 Revised State Budget (APBN-P 2014) on 20 May 2014. Of the seven basic macroeconomic assumptions in the 2014 State Budget (APBN 2014), three assumptions are proposed to be revised. These involve general economic growth, the Indonesian rupiah exchange rate, and crude oil lifting. The government felt that the assumptions need a revision as results in the first quarter of 2014 have not been up to expectation.
The economic growth target that was initially set in the 2014 State Budget was 6.0 percent. This target will be reduced to 5.5 percent. Finance Minister Chatib Basri admitted that it is difficult for Indonesia to achieve the targeted economic growth in 2014 as the realization of economic growth in Q1-2014 was only 5.21 percent. Would Indonesia maintain the initial growth target, then it would mean that Indonesian needs to post economic growth above 6 percent over the next three quarters. This seems highly unlikely.
"We still expect that exports in Q2-2014 will improve (after exports had fallen sharply in Q1-2014). If exports will indeed rise, then we may be able to achieve economic growth of 5.5 percent," Basri said.
A sharp revision is also proposed with regard to crude oil lifting. In the 2014 State Budget, lifting was set at 870,000 barrels of oil per day (bpd). However, this is proposed to be revised down to 818,000 bpd. The revision is needed as the Cepu oil field (Blora, Central Java) can only become operational in November 2014, whereas the initial target was in the mid-year.
This sharp downward revision of the oil lifting target is not surprising considering that actual oil lifting in the last three years always fell well below government targets. In 2013, oil lifting was targeted at 840,000 bpd, while the actual outcome was 825,000 bpd. In 2012, the target was 930,000 bpd but actual realization was 861,000 bpd. Lastly, in 2011, oil lifting was targeted at 945,000 bpd, but the realization was only 899,000 bpd.
Also the Indonesian rupiah exchange rate (against the US dollar) will be revised. According to the 2014 State Budget, the exchange rate is set at IDR 10,500 per US dollar. However, the proposed revision will reduce the target to IDR 11.600 per US dollar.
Meanwhile, the country's inflation target remains intact at 5.5 percent. With light year-to-date inflation of 1.39 percent in April, Basri is optimistic that the 5.5 percent target can be achieved. The government's decision to leave its inflation target unchanged is also a sign that the government will not raise prices of subsidized fuels up to October 2014 when the new government will be inaugurated. In previous years, the government proposed an inflation target of above seven percent in case of a fuel price hike.
| State Budget Draft 2015 |
State Budget Draft 2014 |
Proposed Revision 2014 |
Realization 2013 |
|
| GDP Growth annual percent change |
5.5 - 6.3 | 6.0 | 5.5 | 5.8 |
| Inflation annual percent change |
3 - 5 | 5.5 | 5.5 | 8.4 |
| Exchange Rate IDR/USD |
11,500-12,500 | 10,500 | 11,600 | 10,451 |
| Treasury Bills Interest Rate 3-month, percent |
5.5 - 6.0 | 5.5 | 5.5 - 6.0 | 4.5 |
| Indonesian Crude Oil USD $ per barrel |
100 - 105 | 105 | 103 - 105 | 105.7 |
| Oil Lifting thousand barrels per day |
830 - 900 | 870 | 818 | 825 |
| Natural Gas Lifting barrel of oil equivalent/day |
1,225 - 1,250 | 1,240 | 1,200 - 12,225 | 1,215 |