T

he Finance Ministry has signaled its readiness to tap into funds from multilateral financing agencies to plug the budget deficit amid a fall in state revenue in recent months.

The ministry unveiled on Thursday that as of May 20, the realization of total state revenue stood at Rp 502.7 trillion (US$38.2 billion), far lower than Rp 571.5 trillion recorded as of May 30 last year. The data also showed that state spending fell to Rp 548.7 trillion as of May 20 this year, from Rp 605.7 trillion as of May 30 last year.

Weak revenue collection is expected to pose a challenge to the state budget, because the government will need to increase tax revenue by at least 30 percent to be able to meet its total revenue target, which is expected to increase by 7 percent this year.

Responding to questions regarding the low realization of state revenue, Finance Minister Bambang Brodjonegoro said the government was yet to begin its aggressive tax collection efforts in the first quarter as he claimed it had still been '€œbusiness as usual'€ for the government earlier this year.

But he expressed optimism that the realization of the state budget, particularly on the revenue side, would pick up in the coming months due to stronger tax reforms.

The reforms would come in the form of a reinvention policy (writing off tax fines to draw in more taxpayers), or the introduction of e-tax invoices in some provinces to eliminate fabricated invoices, among other measures, according to Bambang.

The decline in state revenue may have been worse if there had not been a drastic increase in the last couple of days.

According to Finance Ministry data, the country'€™s state revenue increased by more than Rp 130 trillion in three weeks, from Rp 370 trillion as of April 27 to Rp 502.7 trillion on May 20.

Bambang said the increase was probably driven by the tax reinvention policy, which was implemented on May 1, while the weak rupiah had also driven up the country'€™s dollar-denominated non-tax revenues from the oil and gas sector.

When asked on whether the sudden, steep increase in tax collection was justified, the finance minister said: '€œYou [journalists] are not the only ones surprised, I'€™m also surprised,'€ he said.

As weak state revenue could drive up the budget deficit, Bambang said he would consider accessing funds available at the World Bank or the Asian Development Bank (ADB), with additional funds likely to stand at around $1.1 billion.

'€œThe shortfall in budget would be financed not through the issuance of [additional] rupiah government bonds, but by multilateral loans,'€ he said.

This week, World Bank president Jim Yong Kim met with President Joko '€œJokowi'€ Widodo in Jakarta, where he offered the government up to $12 billion in additional funds for the next three to four years.

The US-based World Bank accounts for approximately 60 percent of total Indonesian debt from multilateral organizations, or the government'€™s largest development partner.

BNP Paribas economist Philip McNicholas said the disappointing revenues would clearly create pressure for a wider fiscal deficit, but argued that accessing multilateral loans might not be the best action at the present time.

'€œI would think tapping external markets might be best. Otherwise, you risk crowding out the domestic market,'€ he said.

'€œWorld Bank or ADB financing tends to be project specific and so to my mind, would not be the right course of action.'€