Government Trims Indonesia's GDP Growth Target in 2017 State Budget
The government of Indonesia revised down its forecast for economic growth in 2017 to the range of 5.3 - 5.9 percent (y/y). On Friday (20/05) Indonesian Finance Minister Bambang Brodjonegoro informed parliament about the change in the growth outlook (related to the 2017 State Budget). Initially, the government projected Indonesia's 2017 GDP growth in the range of 5.5 - 5.9 percent (y/y). Brodjonegoro did not explain, however, why the government decided to revise down its GDP growth forecast in the 2017 State Budget.
Finance Minister Bambang Brodjonegoro said Indonesia's economic growth is set to accelerate in line with improving global economic conditions, Indonesia's push for infrastructure development, and rising purchasing power. At the same time the government's 2017 GDP growth projection also factors in several matters that curb Indonesia's economic expansion. These matters include the nation's limited production capacity, limited competitiveness (due to the weak quantity and quality of Indonesia's infrastructure), underdeveloped human resources, underdeveloped technological innovation, the long road toward food sovereignty (food self-sufficiency), and shallow financial markets.
The Indonesian government proposes a IDR 13,650 - IDR 13,900 per US dollar exchange rate in the 2017 State Budget, implying that the government expects the rupiah to depreciate in the period ahead. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) stood at IDR 13,573 per US dollar on Friday (20/05). Over the past week the rupiah has been under pressure as analysts and investors increasingly speculate about a June rate hike in the USA.
Meanwhile, the government proposes a 3 - 5 percent (y/y) inflation target in the 2017 State Budget and the price of Indonesian crude at USD $35 - $45 per barrel. Next week the government and Indonesia's House of Representatives (DPR) will continue discussions about the 2017 State Budget.
Indonesian Government's Macroeconomic Assumptions:
| Government Proposal 2017 State Budget |
|
| GDP Growth annual percent change |
5.3 - 5.9 |
| Inflation annual percent change |
3 - 5 |
| Exchange Rate IDR/USD |
13,650 - 13,900 |
| Crude Oil USD $ per barrel |
35 - 45 |
| Oil Lifting thousand barrels per day |
740 - 760 |
| Natural Gas Lifting million barrels of oil equivalent/day |
1.05 - 1.15 |
Source: Finance Ministry
Finance Minister Brodjonegoro stated that, overall, government spending in 2017 will focus at four matters: (1) infrastructure development, transportation and national logistics, (2) bureaucratic reforms, (3) social protection, and (4) fiscal decentralization aimed at strengthening governance at the local level.
Regarding economic growth in 2016, Brodjonegoro is optimistic that the 5.3 percent growth target can be achieved despite a slightly disappointing GDP growth figure in Q1-2016 (at 4.92 percent y/y). Indonesia's central bank (Bank Indonesia), which left its interest rate policy unchanged at the May policy meeting last week, trimmed its forecast for Indonesia's GDP growth in full-year 2016 to the range of 5.0 - 5.4 percent (y/y), from the range of 5.2 - 5.6 percent (y/y) previously.
Indonesia's Quarterly GDP Growth 2009-2016 (annual % change):
| Year | Quarter I |
Quarter II | Quarter III | Quarter IV | Full-Year |
| 2016 | 4.92 | ||||
| 2015 | 4.73 | 4.67 | 4.74 | 5.04 | 4.8 |
| 2014 | 5.14 | 5.03 | 4.92 | 5.01 | 5.0 |
| 2013 | 6.03 | 5.81 | 5.62 | 5.72 | 5.6 |
| 2012 | 6.29 | 6.36 | 6.17 | 6.11 | 6.0 |
| 2011 | 6.45 | 6.52 | 6.49 | 6.50 | 6.4 |
| 2010 | 5.99 | 6.29 | 5.81 | 6.81 | 6.2 |
| 2009 | 4.60 | 4.37 | 4.31 | 4.58 | 4.6 |
Source: Statistics Indonesia (BPS)