Indonesia posted the lowest budget deficit in years, but experts say the smaller-than-planned gap between state revenue and state expenditure also means the government could have done more to support economic growth.
ast year ended with the lowest state budget deficit in years, but experts say the lower-than-expected figure also means the government could have done more to support economic growth.
Speaking during a press briefing on Tuesday, Finance Minister Sri Mulyani Indrawati hailed the state budget performance as she revealed a deficit amounting to 1.65 percent of gross domestic product (GDP), far below the initial and revised targets of 2.84 percent and 2.27 percent.
“The performance of the 2023 state budget is good, solid [and] credible, not because there were no risks. All risks materialized, but we managed to strengthen the budget and sustain the economy, and take care of the people,” Sri Mulyani said.
A smaller deficit reflects prudent fiscal management leading to a lower shortfall of state revenue compared to state spending, and hence lower debt. However, if this is the result of lower-than-planned budget spending it could also mean the government has failed to use the fiscal means at its disposal to support economic activity in the country.
BCA chief economist David Sumual told The Jakarta Post on Wednesday that this hinted at the 2023 state budget failing to unleash its full economic potential, since the name of the game was to strike a balance between maintaining a healthy fiscal posture and inducing growth.
That is because government spending is a key stimulant for economic growth given its multiplier effect on business activity. Roads, for instance, provide access to previously inaccessible places, and economic activity might spring up as accessibility improves.
David described government spending as an “economic propulsion force” and opined that a deficit below 2 percent of GDP was “too low” to spark increased economic growth last year.
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