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View all search resultsManaging the stimulus during COVID-19’s second wave
Social safety net programs play a significant role in mitigating the rise in poverty as they cover a lot of beneficiaries.
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T
he unrelenting surge of COVID-19 contagion with the deadly Delta variant is testing the government’s competence and leadership as it deals with significant increases in deaths and new cases, the breakdown of the health system, a slow vaccine rollout, popular mobility across Java and Bali and the need to distribute social aid accurately and quickly.
The surge will also deal a major blow to the country’s economic recovery, which had been on an upward trajectory for the last three quarters. The World Bank, in a June 2021 report, projected that Indonesia’s growth would fall by 0.7 percentage points to 4.6 percent in the 2021 to 2023 period, down from an average of 5.1 percent in the 2018 to 2019 period. But that projection came before the second wave of the pandemic, so it is likely growth will be even lower.
The pandemic had also, as of March of this year, increased the number of poor people in the country by 1.12 million to 27.54 million, and according to the World Bank, if the government does not augment social protection programs, another 4.7 million people will plunge into poverty.
Unfortunately, the government cut the budget for social protection from Rp 220 trillion in 2020 to Rp 157 trillion this year. But because of the second wave of the virus, the budget climbed back to Rp 188 trillion.
Social safety net programs play a significant role in mitigating the rise in poverty as they cover a lot of beneficiaries, especially the three major programs of food assistance, cash transfers and the Family Hope Program (PKH) that together cover 10 million to 18 million beneficiaries. Social protection programs have been proven to ease economic pain affecting the poor and the vulnerable during a crisis. Lowering social protection programs while the recovery remains fragile will risk deepening the economic contraction.
The second wave of the COVID-19 outbreak has forced the government to increase fiscal stimulus from Rp 699 trillion to Rp 745 trillion, at a time when tax revenue will be depressed because of lower economic growth. This will push the deficit higher than the 5.5 percent of gross domestic product (GDP) targeted for this year.
Under these circumstances, the government will likely face difficulties in meeting the legally mandated 3 percent of GDP deficit ceiling for 2023.
