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Jakarta Post

Fiscal deficit to decline in 2019, but debt issues to persist: Moody’s

  • News Desk

    The Jakarta Post

Jakarta   /   Sat, August 25, 2018   /   08:07 am
Fiscal deficit to decline in 2019, but debt issues to persist: Moody’s President Joko "Jokowi" Widodo greets members of the People’s Consultative Assembly before delivering the state of the nation address during the assembly's plenary session on Thursday, Aug. 16. (Antara/Hafidz Mubarak)

Moody's investor service has estimated that the Indonesian government will likely narrow the fiscal deficit in the 2019 state budget, but that the strains on debt affordability will likely persist.

Last week, President Joko "Jokowi" Widodo announced in the 2019 state budget bill that the government would seek to narrow the fiscal deficit to 1.8 percent of gross domestic product (GDP) from the projected 2.1 percent in 2018.

“These targets indicate the government’s continued commitment to fiscal discipline, which should support market confidence,” a Moody’s research note issued on Thursday read.

According to Moody’s, the targeted moderation in the deficit to 1.8 percent for 2019 reflects a slight deceleration in revenue and spending growth to 12.6 percent and 10 percent yoy, respectively, compared to this year's projection of 14.2 percent yoy and 10.5 percent.

The 2019 targets were based on 5.3 percent yoy GDP growth, which was marginally more optimistic than Moody’s estimate of 5.2 percent, the note said, adding that the targets may still be challenging to achieve, particularly when set against a track record of revenue underperformance and the absence of any major revenue reforms.

“Although the government is targeting an optimistic increase in revenue to 13.3 percent of GDP in 2019, revenue collection rates will remain the lowest among investment-grade sovereigns. Slow revenue improvements have weighed on debt affordability,” Moody’s said.

“Spending trends indicate a move away from the recent thrust on capital spending, and towards recurrent expenditure, particularly personnel, social and interest spending, which is a continuation of populist measures in the run-up to elections scheduled in April 2019.” (bbn)