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House, govt to finalize budget
The government and lawmakers have agreed to continue finalizing the 2019 state budget bill as the latter consider the draft to be sufficiently credible despite several adjustments being made to account for pressures imposed by the global economy
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span>The government and lawmakers have agreed to continue finalizing the 2019 state budget bill as the latter consider the draft to be sufficiently credible despite several adjustments being made to account for pressures imposed by the global economy.
Hendrawan Supratikno, a member of the House Commission XI overseeing fiscal and financial affairs, said the bill was expected to be passed into law before the upcoming recess from Nov. 1 to 18, giving lawmakers and the government at least a seven day window to reach an agreement.
Meanwhile, the House’s budget committee chairman, Azis Syamsudin, a Golkar Party politician, said no notable changes had been made to draft state budget, despite the recent adjustments.
“[The 2019 budget bill] is still in line [with the government’s proposal],” said Azis after a closed meeting with the government at the House of Representatives’ building in Jakarta on Monday.
Azis said Monday’s meeting was held to ensure the bill would also be in line with prevailing laws.
In a meeting with the government last week, the House’s budget committee agreed with the government’s proposal to revise the rupiah exchange rate assumption in the 2019 budget bill to Rp 15,000 per United States dollar on average, from the previous figure of Rp 14,500 per US dollar on average.
This was the second revision of the exchange rate assumption since President Joko “Jokowi” Widodo presented the government’s 2019 state budget proposal to lawmakers in August. The initial assumption was set at Rp 14,400 to the greenback on average.
The rupiah has depreciated by more than 10 percent throughout the year as portfolio investors dumped emerging market assets in favor of higher yields in developed economies, adding vulnerability to the global economy amid the trade tensions between the US and China.
The rupiah traded at Rp 15,192 per US dollar on Monday, slightly stronger than Rp 15,221 on Friday, according to the Jakarta Interbank Spot Dollar Rate (JISDOR).
Meanwhile, domestic issues, such as the widening of the current account deficit to US$8 billion in the second quarter this year, equal to 3 percent of the country’s GDP, have also added to the negative sentiment toward the rupiah.
Hendrawan, an Indonesian Democratic Party of Struggle (PDI-P) politician, said the latest rupiah exchange rate proposal was “realistic”, and expressed hope that the latest budget would gain more credibility in the eyes of market players.
“The more realistic [the 2019 state budget], the more credible it will be perceived by the market, business players and the general public,” said Hendrawan.
The government has calculated that the downward adjustment of the exchange rate assumption will create an additional Rp 10.3 trillion ($676.6 million) in state revenue next year, while state spending is also estimated to increase by Rp 10.9 trillion due to larger external debt payments and increased energy subsidies.
Despite the changes made to the spending and revenue outlook for next year, Finance Minister Sri Mulyani Indrawati previously said the government remained optimistic about keeping the fiscal deficit to 1.84 percent of GDP next year, in line with the government’s original proposal in the 2019 state budget draft.
Other macroeconomic indicators, meanwhile, remain unchanged as lawmakers and the government agreed on the Indonesian Crude Price (ICP) assumption at $70 per barrel for next year. Economic growth is targeted to reach 5.3 percent in 2019, while the inflation rate has been assumed to hover between 2.5 and 4.5 percent.
Eric Sugandi, an economic observer at the Asian Development Bank (ADB) Institute, said the updated macroeconomic indicators agreed on by the legislators and the government were realistic, highlighting that the inflation rate could stay between 3.5 and 4 percent if the government refrained from increasing the subsidized fuel price next year.
While state revenue would experience a boost from the rising global oil price next year, Eric said state spending should be monitored if signs emerged of a revenue shortfall. In that situation, he suggested that the government should reprioritize its spending and temporarily halt infrastructure projects deemed not urgent.
“[The government] should be smart and flexible in managing its spending because the revenue side is being affected by external factors that are beyond the control of the government,” said Eric.
