T

he country’s economic growth will still be able to reach the government’s target by year-end, supported by public spending and revenue improvement following a recent state budget cut, experts and officials say.

The government has recently targeted economic growth to be at 5.1 percent this year, slightly lower than the 5.2 percent target in the revised 2016 state budget as it decided to reduce public spending in a bid to maintain a healthy fiscal balance.

The state budget cut, which amounted to Rp 137 trillion (US$10.2 billion), was made in early August as President Joko “Jokowi” Widodo called for efficiency measures on less important spending. The decision has directly impacted government spending, which contracted by 2.97 percent in the third quarter.

“As growth was weak in the third quarter, we hope there will be a little push in the fourth quarter as the budget cut’s impact is expected to be smaller. Revenue from the tax amnesty was also higher than expected,” Bank Central Asia chief economist David Sumual said on Monday.

The government’s tax amnesty, which has been going on for almost five months, received Rp 94.7 trillion in penalty payments as of Monday evening, government data show.

David said consumer demand had yet to show improvement as there remained a time lag between Bank Indonesia’s (BI) monetary easing and response from the banking industry. However, he said slightly better government spending supported by revenues from the tax amnesty could help trigger growth to hover at around 5 percent to 5.1 percent as expected.

The central bank had cut its benchmark rate by a total of 150 basis points (bps) year-to-date, but the easing policy transmission had yet to create a stimulus for the economy as lower lending rates in the banking industry did not necessarily trigger demand for credit largely due to the impact of sluggish global economic growth.

With BI’s aggressive easing so far, it was seen that the central bank had run out of ample room to continue cutting rates as risks of capital outflows caused by global uncertainty have continued to rise following the US presidential election and the Federal Reserve’s plan to hike its fund rate.

“Despite the interest rate [BI’s seven-day reverse repo rate], [which] was held at 4.75 percent, it won’t disturb economic growth until year-end as government spending will be bigger,” Bahana Securities economist Fakhrul Fulvian wrote in his recent note.

“With recent global economic rout, the government should improve its fiscal [situation], particularly expenditure, so that investors will see that economic fundamentals remain under control,” he added.

BI Governor Agus Martowardojo said recently that economic growth was predicted to hover above 5 percent at year-end as household consumption remained strong and improvements in several commodity prices were still ongoing, despite the downside impact of the government’s budget cut.

Finance Minister Sri Mulyani Indrawati said state revenue improvement was expected to help government spending until the end of this year.

She recently said the government had submitted its proposal of at least seven revised laws related to taxation, fund transfers and regional fiscal balance in order to reform the state fiscal condition and improve revenues in the future.

There are five law revisions related to taxation proposed by the government, namely the General Taxation System Law, the Income Tax Law, the Value Added Tax Law, the Stamp Duty Law and the Land and Building Tax Law.