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Govt upbeat about sound state budget

The government is confident that the 2018 state budget will remain sound and credible even though some assumptions, notably the rupiah exchange rate against the United States dollar and reference oil price, are no longer relevant in current conditions

Marchio Irfan Gorbiano (The Jakarta Post)
Jakarta
Thu, July 19, 2018

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Govt upbeat about sound state budget

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span>The government is confident that the 2018 state budget will remain sound and credible even though some assumptions, notably the rupiah exchange rate against the United States dollar and reference oil price, are no longer relevant in current conditions.

Its confidence was primarily driven by the state revenue projection this year, which was estimated to be in surplus driven by higher-than-expected non-tax revenue, fueled by high commodity prices.

The government projected it would collect Rp 1.9 quadrillion (US$132.09 billion) in revenue this year, Rp 8.3 trillion higher than the Rp 1.89 quadrillion target set in the 2018 state budget.

While the government projected a shortfall of Rp 69.6 trillion in its taxation revenue, the gap in state revenue was expected to be covered by non-tax revenue, which was estimated to reach Rp 349.2 trillion, some
Rp 73.7 trillion higher than the target this year.

As of the first half of this year, the government has already collected Rp 176.83 trillion from non-tax revenue, or 64.2 percent from the Rp 275.42 trillion target

On the spending side, the government projected budget absorption by ministries and other government institutions’ this year to hover at between 95 and 96 percent from its Rp 847.4 trillion allocation.

Such an outlook would result in a lower deficit projection at 2.12 percent of the gross domestic product (GDP), or Rp 314.2 trillion, from the initial 2.19 percent budget deficit as outlined in the state budget.

“This [spending and revenue outlook] relatively puts our state budget’s posture in conformity with the state budget law,” Finance Minister Sri Mulyani Indrawati recently told lawmakers.

Bank Permata economist Josua Pardede said a lower deficit signaled that the government was prudent in managing its budgetary affairs.

“This is a good sign that the government is prudent in its fiscal and debt management,” he said.

While acknowledging that the surplus in revenue has boosted the government’s confidence in meeting its target, Center of Reform on Economics (CORE) Indonesia executive director Mohammad Faisal said the government should ensure the budget could drive economic growth through spending.

He encouraged the government to quickly boost its capital spending, which was during the first half of this year.

The government disbursed Rp 40.75 trillion in capital spending in the first half of this year, or only 19.99 percent of a Rp 203.88 trillion ceiling in the budget, Finance Ministry data revealed.

The rate of spending was far lower than that of personnel expenditure and spending of goods, which has been 45.62 percent and 31.4 percent realized, respectively, out of its budget ceiling.

Such confidence from the government, however, was aired despite the deviation of several macroeconomic assumptions in the state budget. The rupiah exchange rate, for instance, was estimated to be around Rp 13,973 per US dollar on average for this year, higher than the Rp 13,400 assumption in the 2018 budget.

In addition, the government also projected the GDP to expand 5.2 percent in 2018, lower than 5.4 percent set out in the budget.

The reference oil price or Indonesia Crude Price (ICP) was also projected to reach US$70 per barrel, also higher than $48 per barrel stated in the budget.

While the government insists higher-than-expected ICP would positively impact the state budget, it would also result in a ballooning energy subsidy, which was projected at Rp 163.5 trillion, higher than Rp 94.5 trillion set in the 2018 budget.

The Finance Ministry’s director general of budgetary affairs, Askolani, separately said the expected windfall from the higher-than-expected ICP would be directed to the energy subsidy.

“The higher ICP [compared to the assumption in the budget] will result in an increase in revenue, particularly from oil and gas from non-tax revenue and income tax [PPh]. The windfall [from the increased revenue] could be directed to our energy subsidy,” he said.

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