I

ndonesia saw a budget surplus in the first quarter (Q1) of this year, but only because poor government planning resulted in slow budget disbursement.

The 2014 state budget had a Rp 2.2 trillion (US$192.1 million) surplus in the January-March period, in contrast with a Rp 18 trillion deficit in the same period last year, recent data from the Finance Ministry shows.

The surplus was caused by sluggish spending, as the government only spent Rp 286.5 trillion of Rp 1,842 trillion earmarked in the budget.

The Finance Ministry had hoped to see a budget deficit to boost economic growth from the spending side.

However, capital expenditure (capex) '€” which covers spending allocated for infrastructure projects that have a multiplier effect on economic growth '€” for the first quarter was only Rp 7.8 trillion of Rp 184.4 trillion allocated in the budget.

Though capex realization is normally low in the beginning of the year, as some government projects remain in the tender process, the 4.4 percent realization of capex in the first quarter of this year was worse than last year'€™s figure of 5.6 percent.

'€œThe realization of our capital expenditure should have been faster if, first, there'€™s no problem in the tender process, second, the ministries are more prepared in their [budgeting] requirements, and third, other obstacles such as land acquisition process could be resolved,'€ said Askolani, the Finance Ministry director general for budgeting, during a press briefing late Wednesday.

Nevertheless, he predicted that the budget would go into deficit by the end of this year, as certain types of spending, such as fuel subsidies, would pick up starting in the second quarter (Q2).

During the first three months of this year, only Rp 20 trillion of Rp 211 trillion allocated for fuel subsidies had been spent. Low first quarter fuel subsidy spending was most likely because oil-import payments from state-run oil and gas firm PT Pertamina normally come with a three-month lag, Askolani explained.

There remains a possibility, however, that fuel subsidy spending would breach the initial target this year. '€œThe strengthening dollar would have an effect on the fuel subsidy burden,'€ Askolani said. In drafting the 2014 state budget, the government assumed the rupiah would trade at 10,500 per US dollar. The currency is currently hovering at around 11,500 against the greenback.

The combination of rising oil imports and weak rupiah might swell fuel subsidies and ultimately push up Indonesia'€™s budget deficit, which was assumed to be 1.7 percent of gross domestic product (GDP) in the 2014 state budget.

Economists from Nomura Holdings Inc. estimated that the budget deficit could top 2.7 percent this year, the highest since the Asian financial crisis.

Sluggish growth in government spending, which accounts for 9 percent of Indonesia'€™s GDP, has been blamed as not helping the country cope with the economic slowdown resulting from decreased exports.

Indonesia'€™s economic expansion slowed to 5.2 percent in the first quarter, the lowest level in almost five years, with government spending only expanding by 3.6 percent '€” the second-biggest growth laggard after exports.

Telisa Aulia Falianty, an economist from University of Indonesia (UI), noted that the low realization of government spending was a cross-sector issue, as some ministries '€” which already struggled to disburse their funds due to limited budget planning capacity '€” were now running into more bureaucratic red tape because of tight budget supervision by the Corruption Eradication Commission (KPK) and the Supreme Audit Agency (BPK).

'€œMy experience in the government shows that a project that used to need 10 pages of administrative paperwork to fill now needs 50 pages,'€ she said in a phone interview. '€œWe need to find a '€˜middle way'€™ of how to maintain governance in budget disbursement, but without overly rigid regulations that cause inefficiency in government spending.'€