Sri Mulyani: Indonesian Economy Affected by Global Uncertainties
Indonesian Finance Minister Sri Mulyani Indrawati expects global uncertainties to linger in 2017 and continue to have a significant impact on the economy of Indonesia. Uncertainties are caused by the US economy, Donald Trump's victory in the US 2016 presidential election, the economic and monetary policies of advanced economies and the economic slowdown of China. She added that the 2017 State Budget, which set conservative targets in terms of Indonesia's GDP growth as well as government revenue and spending, was designed with these global challenges in mind.
In October 2016 Indonesia's House of Representatives (DPR) approved the 2017 State Budget (APBN 2017) in a plenary session. With the economic growth target set at 5.1 percent year-on-year (y/y), government spending at IDR 2,080.5 trillion (approx. USD $160 billion), government revenue at IDR 1,750.3 trillion (approx. USD $135 billion), and the government's budget deficit at 2.41 percent of gross domestic product (GDP), the 2017 State Budget is considered realistic.
Delivering a realistic state budget is a good development and constitutes a break with the recent past. A realistic budget implies that chances are much bigger that targets will be achieved at the year-end. This would enhance Indonesia's fiscal - and overall - credibility. In recent years the government had set unrealistically high targets in terms of state revenue (especially tax revenue). Although it is important to set high targets in order to optimize efforts, it can backfire when targets are set too high as officials and other people realize these targets cannot be achieved even if they would perform at their maximum level. Moreover, as mentioned above, it undermines credibility when targets are not met for many years in a row.
A realistic 2017 State Budget with the GDP growth target at 5.1 percent (y/y) is a sign that the government of Indonesia prefers to "over-deliver" rather than "under-deliver" next year. The World Bank put its forecast for Indonesia's economic growth in 2017 at 5.3 percent (y/y) in its October Indonesia Economic Quarterly report. Usually, it is the other way around: the Indonesian government tends to have a growth target in the state budget that is higher compared to forecasts from institutions such as the World Bank and the International Monetary Fund (IMF). As such the 2017 State Budget is an interesting - and good - change of tactics
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