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Indonesia may want to aim for larger budget deficit: Moody’s Analytics
In the face of global economic challenges, the government might want to fret less about fiscal consolidation and more about a sustained recovery, Moody’s Analytics suggests.
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The Finance Ministry is pictured in this undated handout photo. (Courtesy of Finance Ministry/-)
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n response to global economic challenges, Indonesia might want to fret less about fiscal consolidation and more about a sustained recovery, Moody’s Analytics has suggested, adding that the country has the financial “firepower to run an expansionary budget for another year.”
Indonesia’s fiscal plan foresees the country pushing its budget deficit back down to less than 3 percent of GDP next year. Law No. 2/2020 on state finances and COVID-19 handling allowed the government to exceed the usual 3 percent cap only in the years of 2020 through 2022, so as to enable massive additional spending in response to the coronavirus pandemic.
“Under normal circumstances, the decision to reinstate the deficit ceiling would be seen as prudent fiscal management. However, against the backdrop of significant macroeconomic uncertainties […] as well as a global economic slowdown amid the highest inflation in years, reinstatement of the fiscal deficit ceiling is premature,” Moody’s Analytics’ Gabriel Tay said in a commentary on Monday.
With six months of budget surplus in the first half of 2022, Indonesia stood out among both emerging and developing countries, but experts told The Jakarta Post earlier this month that they did not expect that trend to last through the remainder of the year.
Read also: Subsidies, falling commodity prices spell end for budget surplus
Thanks largely to income from commodity exports at a time of high global prices, the government had racked up a budget surplus of Rp 73 trillion (US$4.9 billion), 0.39 percent of GDP, by the end of June, putting the country well ahead of its fiscal-consolidation targets.
The latest government projection envisions the deficit dropping to 2.85 percent of GDP in 2023, down from an expected 3.9 percent shortfall this year, which, in turn, is lower than the 4.5 percent stated in the revised plan for 2022.
