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espite boasting sharper fiscal discipline, the government’s plan to reduce its spending next year will potentially create negative spillovers and drag down potential economic growth.

In a meeting with legislators on Thursday evening, the government, represented by Finance Minister Sri Mulyani Indrawati and Suahasil Nazara, the Finance Ministry’s fiscal policy head, said it had reduced its annual spending growth projection for next year to 4.8 percent from 5.4 percent as stated in the original 2017 state budget draft.

The lower projection is mainly caused by its plan to cut down on what it called “consumptive spending”.

“What we plan to cut are those things related to goods expenditure, consumption and official travel, not capital expenditure. Capital expenditure will be maintained as much as possible by the government, so that the [impact] will show in investments,” Suahasil told journalists after the meeting with members of House Commission XI, which oversees finance.

The government predicts that investment will expand by 6.1 percent annually next year, lower than its previous target of 6.4 percent as several business sectors, such as commodities, remain under pressure from a slowing global economy. Domestic or private consumption growth, meanwhile, is maintained at between 5 percent and 5.1 percent.

In the end, it estimates the 2017 gross domestic product (GDP) to stand at 5.2 percent from original estimate of 5.3 percent.

Government spending is traditionally listed in fourth place in terms of growth components, trailing behind domestic consumption, investments and exports. However, there is still a sizable gap between the contribution of domestic consumption and that of government spending.

Last year, domestic consumption made up for more than half of the country’s gross domestic product (GDP), while government spending accounted for just 13.5 percent.

Despite its small portion, government spending is considered the growth component that creates the biggest multiplier effect due to its various projects. The decision to push spending this year bodes well for economic growth, as shown by data from the Central Statistics Agency (BPS).

In the second quarter, government spending surged 6.3 percent year-on-year (yoy) in the April to June period, partially resulting in economic growth of 5.2 percent.

In the first quarter, when government spending only climbed 2.9 percent yoy, the economy expanded by 4.9 percent.

Center for Reform in Economics (Core) Indonesia research director Mohammad Faisal said government spending was closely related to other economic growth components. “Lower government expenditure growth will automatically contract investment and indirectly affect investor sentiment toward the government’s [economic] expansion,” he said on Friday.

The lower spending will also result in fewer projects, lower workforce absorption and weaker purchasing power from fewer job opportunities.

However, Faisal was quick to say he was certain the government had calculated all of these impacts when deciding to cut its economic growth projections.

Gadjah Mada University economist A. Tony Prasetiantono shares Faisal’s view but said next year’s “more realistic” state budget had sent a positive signal to the market. “Investors see that Indonesia is still committed to boosting infrastructure construction because the government will only cut non-priority spending,” Tony said.