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Austerity saving RI economy, Sri Mulyani says
Slashing a big amount off government spending helped keep Indonesia’s economy afloat amid slumping global growth last year and may need to be repeated this year, Finance Minister Sri Mulyani Indrawati has said
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lashing a big amount off government spending helped keep Indonesia’s economy afloat amid slumping global growth last year and may need to be repeated this year, Finance Minister Sri Mulyani Indrawati has said.
The austerity measures — taken under Sri Mulyani’s supervision just a month after her appointment — helped President Joko “Jokowi” Widodo’s administration reduce the budget deficit to 2.49 percent of GDP by the end of 2016 from an initial prediction of 2.7 percent, approaching the legal limit of 3 percent.
In an effort to create a widely touted “credible state budget,” the government cut the budget by Rp 137 trillion (US$10.29 billion) in early August last year, mostly by trimming what was deemed less important spending.
Presenting the official report on the 2016 state budget at the House of Representative on Tuesday, Sri Mulyani said that strategy had helped the government manage the budget deficit on a “productive level” last year and could be re-launched to maintain the growth momentum.
“To manage the budget deficit and carefully prevent extra debts, the government will continue to increase tax and non-tax revenue amid efficiency in non-productive spending,” she told hundreds of lawmakers at the House’s plenary meeting.
Indonesia recorded a debt-to-GDP ratio of 28 percent last year, low compared to some G20 countries and ASEAN neighbors, such as Malaysia and Thailand, where the figures stand at 53 percent and 44 percent, respectively.
“If the debt was truly productive, revenue would improve when the government issues new debt, but since 2012, debt was used to cover a deficit stemming from non-productive spending,” said Institute for Development of Economics and Finance (INDEF) economist Bhima Y. Adhinegara.
The government agreed with lawmakers on Tuesday that the country’s debt structure should be managed well to prevent a rising burden on the state budget in the future, while also pushing regions to be more efficient in their spending.
“We ask [local administrations] to be efficient and effective in their spending. We also push them to avoid idle funds,” said the Finance Ministry’s budget director general, Askolani.
However, the government is in the process of proposing to the House a new budget deficit projection in the draft for the revised 2017 budget, raising the figure to 2.92 percent, far higher than the initial target of 2.41 percent, and prompting economists to predict budget cuts before year end.
In its latest calculation, the government predicts state spending this year to rise to Rp 2.11 quadrillion from its initial target of Rp 2.08 quadrillion because of proposed extra spending, including for increased fuel subsidies to cope with rising global oil prices.
On the revenue side, tax revenue is estimated to fall short of the intial target by more than Rp 36 trillion. Therefore, total revenue in the 2017 state budget might decline to Rp 1.71 quadrillion from an initial target of
Rp 1.75 quadrillion.
The government is still convinced it can keep the deficit below 2.67 percent through efficiency measures.
