The much awaited 2009 revised budget is most likely to be approved by lawmakers sometime this week. Under the revision, the budget deficit will be at 2.6 percent of our gross domestic product (GDP), widening the budget gap to Rp 136.9 trillion from an original Rp 51.3 trillion.

A wider budget deficit is unavoidable on the back of a lower economic growth assumption of only 4.5 percent down from 5 percent previously, as a result of a forecast Rp 65 trillion reduction in tax revenue, down to Rp 660.9 trillion, while spending remains the same.

It is worth noting however, that Indonesia is not alone in increasing its budget deficit in order to support improved economic performance through fiscal stimulus.

Many other countries are also having huge deficits to avoid further economic deceleration and to cushion rising unemployment.

In the US, for example, President Obama has announced he will run a huge budget deficit to try to deal with the financial crisis.

As of Jan. 8, 2009, the US Congressional Budget Office estimated that the US 2009 budget deficit would more than double year-on-year to US$1.3 trillion in support of the $787 billion economic stimulus package.

It is much the same story with Japan, the second largest country in the world in term of GDP. It is suffering from a severe recession in 2009 with average annual GDP growth at negative 0.1 percent. As a result, Japan's fiscal position is extremely weak, exacerbated by the impact of the government's stimulus package, which it is forecast will result in an average budget deficit of 4.1 percent of GDP from 2009 to 2013.

Additionally, some EU countries (e.g. Ireland, Greece, France, and Spain) inspected by the European Commission have exceeded the EU deficit limit of 3 percent of GDP as a result of spending billions on fiscal stimulus schemes to fight the worst recession since World War II.

Massive fiscal stimuli globally have resulted in ballooning budget deficits in many countries.

This would mean increasing requirements for financing. As liquidity remains tight, this would eventually lead to a crowding out effect.

Going forward, we expect intense competition for fund raising amongst countries (e.g. advanced countries versus emerging countries) as well as between governments and private sectors.

Thus, we suggest that the government would be better off finding additional financing from multilateral and bilateral schemes and sources than to issue more securities.

We view positively that the Indonesian government has moved to secure financing by approaching multilateral institutions and countries like Japan and Australia.

According to the latest data from the Ministry of Finance, the Indonesian government has already received $5.4 billion in standby facilities from several institutions and countries. These funds can be used when other financing sources, such as bonds, have been optimized.

Other sources of financing include the 2008 excess financing coupled with issuance of government securities. These would raise around Rp 105 trillion or about 70 percent of total budget deficit. Thus, Indonesia's budget requirement is fully secured from the three aforementioned sources.

In spite of this, we still see two downside risks: lower than expected economic growth and a weaker currency. If growth drops below assumed levels, government would require additional financing to fill the wider budget deficit. On the currency front, a weaker rupiah would mean lower economic growth.

Currently, we expect Indonesia to book 4.1 percent GDP growth in 2009. It is possible if the rupiah were weaker than expected that we could see the country's GDP growth hitting 3.5 percent, which is the floor in our view.

Why? With close to 65 percent of Indonesia's GDP being domestic consumption, we believe 5 percent growth is a must because people need to eat. This alone would already contribute to GDP growth of 3.25 percent.

And there lies the resilience of the Indonesian economy as its citizens eat from hand to mouth with very little savings in their pockets.

So to find the floor in Indonesia's GDP growth, one need not look further than in the spending habits of its citizens.

The writer is an economist at Bahana Securities

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