Indonesia's 2017 Budget Deficit & Debt-to-GDP Ratio Considered Safe
The government of Indonesia says the budget deficit (set in the state budget) and debt ratio are safe. In Indonesia's 2017 State Budget the government targets a 2.41 percent of gross domestic product (GDP) budget deficit (below the legal limit of 3 percent of GDP as stipulated by Law No. 17/2003). Meanwhile, Indonesia debt-to-GDP ratio was 28 percent at end-2016, a very comfortable ratio (for comparison, Japan's debt ratio exceeds 200 percent of GDP).
In August 2016 when Indonesian President Joko Widodo unveiled the 2017 State Budget - which was approved by Indonesia's House of Representatives (DPR) two months later - the proposal was highly welcomed by analysts as the budget was regarded far more realistic compared to the preceding budgets that were drafted by the Indonesian government (usually tax revenue targets were set at unrealistically high levels, especially after 2013). In fact, it led to the assumption that former World Bank managing director Sri Mulyani Indrawati, who became Indonesia's new finance minister in a cabinet reshuffle that was conducted in mid-2016, had big input in this more pragmatic 2017 budget.
Commenting on government debt, Finance Minister Sri Mulyani said it is key to use debt for productive matters (that generate future revenue streams and thus enhance the strength of the economy). Considering the nation requires a huge amount of infrastructure development, there is no way to avoid a budget deficit. Public investment on infrastructure is needed to combat high logistics costs and create a more conducive investment climate, and thus - on the longer term - accelerate the pace of economic growth in Southeast Asia's largest economy. Besides infrastructure spending, Sri Mulyani also emphasized that ministries and other government agencies need to safeguard the continuation of productive spending programs (for example social programs) in order to improve the economy and create a more just society.
Lastly, she said the DPR needs to support the reform program that will be conducted within the Finance Ministry, and which particularly aims to restructure the nation's Tax Office and the Directorate General of Customs and Excise. If successful, it should boost Indonesia's tax revenue in 2017.
To finance the deficit in the 2017 State Budget, the Indonesian government plans to offer IDR 597 trillion (approx. USD $45 billion) worth of debt paper to the global investor community. Timing of the issuance should be accurate as there are still several matters that can impact negative on the global economy and cause sudden, volatile global financial market performance (for example, risks stemming from a possible default of Greece on its debt). In times of global turmoil, emerging market assets are usually the first to be dumped (including Indonesian bonds) as investors are in search of safe haven assets.
Macroeconomic Assumptions:
| Macroeconomic Assumptions 2017 State Budget |
Original 2016 State Budget |
|
| Government Revenue in IDR trillion |
1,750.3 | 1,822 |
| Government Spending in IDR trillion |
2,080.5 | 2,096 |
| Budget Deficit % of GDP |
2.41 | 2.15 |
| GDP Growth annual percent change |
5.1 | 5.3 |
| Inflation annual percent change |
4.0 | 4.7 |
| Exchange Rate IDR/USD |
13,300 | 13,900 |
| 3-Month Notes coupon (%) |
5.3 | 5.5 |
| Crude Oil Price in USD per barrel |
45 | 50 |
| Oil Lifting barrels of oil per day |
815,000 | 830,000 |
| Unemployment percentage of labor force |
5.6 | |
| Poverty percentage of population |
10.5 |
Sources: Finance Ministry & Commission XI DPR