I

ndonesia’s state budget deficit is set to soar to its highest level in decades and almost reach the legally allowed limit due to massive revenue shortfalls, including that from the government’s flagship tax amnesty program.

Finance Minister Sri Mulyani Indrawati increased once again the nation’s fiscal deficit target to 2.7 percent of Indonesia’s gross domestic product by year-end, due to higher revenue shortfall. The figure is just short of the legally allowed limit of 3 percent and will be the highest deficit in decades.

Since assuming office at the end of July, Sri Mulyani has risen the deficit target twice, from an initial forecast of 2.35 percent in the 2016 revised state budget, due to a multibillion dollar tax revenue shortfall that has left the budget short of cash for expansion.

“The aim [of widening the fiscal deficit] is to maintain the momentum of the government’s priority programs so that they will not be disrupted [by further budget cuts],” she said after a limited Cabinet meeting with President Joko “Jokowi” Widodo on Friday evening.

The fact that budget deficit has been increased without any spending cuts means the government remains committed to spending to boost growth in a time of need, even if it did not have enough cash, economists said.

“The government continues to push for economic growth through a higher budget deficit and without further spending cuts,” Gadjah Mada University economist A. Tony Prasentiantono said on Sunday.

Japanese investment bank Nomura even expected the deficit to reach 2.9 percent, but said: “This underscores our long-held view that fiscal policy will remain supportive of growth and that weaker-than-budgeted tax collections are unlikely to result in sharp declines in infrastructure spending for the government to meet the fiscal deficit limit of 3 percent of GDP this year.”

“Along with monetary policy easing and continued economic reforms, we believe this should sustain the domestic demand-led recovery,” wrote Singapore-based Nomura analysts Euben Paracuelles and Lavanya Venkateswaran in a report published Friday.

In its attempt to boost economic growth from a six-year low of 4.79 percent last year, the government is facing the issue of a cash-strapped state budget due to target overshoot and a weak economy.

The Finance Ministry’s fiscal policy agency head Suahasil Nazara said the widening deficit had been planned considering state revenue risks that have emerged amid an acceleration in state spending.

“[The revenue risks] come from overall taxation revenue, including that from the tax amnesty,” he told The Jakarta Post.

The government expected a Rp 219 trillion (US$16.65 billion) revenue shortfall this year, causing state spending to be cut by Rp 137 trillion just weeks after Sri Mulyani took the helm of the Finance Ministry. As of early August, state revenues had only reached 46.1 percent of the target in the revised state budget of Rp 1.79 quadrillion, according to the latest data from the ministry.

Meanwhile, state revenue from the government’s tax amnesty program only reached Rp 25.8 trillion as of Sunday, 15.6 percent of the Rp 165 trillion target due next December.

Exacerbating the outlook is higher-than-budgeted state spending for cost recovery, a scheme that reimburses oil companies for exploration and production costs, which also means that non-tax state revenues from natural resources will decline, Sri Mulyani said.

In addition, some ministries are likely to absorb their budgets faster due to better planning since early this year and presidential instruction to accelerate infrastructure-related spending, she went on. Government spending disbursement is expected to reach 97.1 percent, from the previous expectation of 95 percent.

Bank Mandiri senior economist Andry Asmoro suggested that the government issue Rp 24 trillion bonds to plug the higher fiscal deficit, which is considered to still be at a normal level.

“The risks would not be too big for the state budget,” he added. “We have forecast that the deficit will widen because the government’s budget disbursement has been much better. The problem is on the tax revenue side.”