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View all search results3% deficit cap revision puts Indonesia’s fiscal credibility at risk
The House is currently discussing revisions to Law No. 17/2003 on state finance, which has long been used to anchor annual budgets by limiting the deficit to 3 percent of GDP and accumulated debt to 60 percent of GDP.
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President Prabowo Subianto looks on before delivering a speech on the macroeconomic framework to lawmakers on May 20 at the House of Representatives building in Jakarta. (AFP/Bay Ismoyo)
A
s lawmakers are pushing to revise the long-standing fiscal deficit ceiling of 3 percent of gross domestic product, analysts warn that the move may create a negative perception of the country’s fiscal credibility and sustainability.
Muhammad Misbakhun, chairman of House Commission XI, which oversees financial affairs, has called to reconsider the limit as an “absolute” ceiling and argued that fiscal policy needed “more flexibility” to finance economic expansion, improve welfare and help the country escape the middle income trap.
“People talk about a 3 percent deficit, I ask, in which article [it is written]? No one can point to it. The deficit is not a norm,” Misbakhun told a House hearing on Thursday, attended by several economists.
“When the situation is calling for intervention, […] how can we achieve that growth if we lock ourselves [into that limit]?”
Read also: Suahasil seen to prioritize fiscal discipline, continuity
Commission XI is currently discussing revisions to Law No. 17/2003 on state finance, which contains the fiscal rules introduced after the financial and monetary crisis that swept the country in 1997-1998. The law has long been used to anchor annual budgets since then by limiting the deficit to 3 percent of GDP and accumulated debt to 60 percent of GDP.
Misbakhun questioned why the legal weight of both figures should be kept, saying they appear only in the law’s explanatory section, leaving room to reconsider how rigidly the limit should be applied while arguing the deficit “is an outcome” of the gap between state revenue and spending, not a policy objective.
