Finance Minister Sri Mulyani Indrawati said the global environment next year was still challenging amid uncertainties such as the ongoing trade tensions between the United States and China — despite a slight détente between the world’s two biggest economies following the recent G20 meeting in Buenos Aires, Argentina.

She added that the government would direct its fiscal policy, particularly the 2019 state budget, toward maintaining the stability of the domestic economy.

“We will safeguard the state budget in 2019 so that it will still be able to act as an anchor of stability,” said Sri Mulyani in Nusa Dua, Bali, on Thursday, adding that the government would retain a degree of flexibility in its fiscal policy to respond to external dynamics despite its desire to seek stability.

Sri Mulyani said the government would closely monitor how developments in the global economy impact Indonesia’s domestic demand, the main engine of growth in the country, while projecting that household spending would grow 5.1 percent next year, slightly above its traditional 5 percent growth.

The changing external environment could also have a significant impact on the country’s trade balance, Sri Mulyani said, outlining that challenges would come from the declining price of crude palm oil (CPO), while the expected slowdown in China’s growth amid its trade spat with the US could result in reduced coal demand from the country.

“The pressure on exports would likely be quite tangible and we need to be aware of it,” said Sri Mulyani.

The commitment to stability can be reflected in the lower fiscal deficit target outlined in the 2019 state budget at 1.84 percent of GDP, equal to Rp 296 trillion (US$20.2 billion).

While the figure was lower than the 2.19 percent deficit aimed for in this year’s budget, Sri Mulyani said, based on the realization of the state budget as of November, the Finance Ministry projected that this year’s deficit could be realized near to the 2019 target at between 1.86 and 1.87 percent of GDP.

Despite a lower fiscal deficit target next year, Sri Mulyani emphasized that the government would still be able to boost the economy through an array of fiscal incentives.

Mark Billington, Southeast Asia regional director at the Institute of Chartered Accountants in England and Wales (ICAEW), said the hawkish monetary policy stance by Bank Indonesia (BI) would dampen the domestic demand for next year.

BI has raised its policy rate six times this year, hiking its seven-day reverse repo rate by a total of 175 basis points (bps) to bring the rate to the current 6 percent level in an aggressive move to stabilize the rupiah as well as maintain the attractiveness of domestic financial assets to invite inflows of foreign capital.

Billington also echoed Sri Mulyani’s view that Indonesia would face a greater challenge in its export as a result of easing demand in China.

“Overall, we see Indonesia’s growth continuing to slow slightly over the next few quarters with the outlook for exports set to be more challenging amid easing Chinese import demand and increased trade tensions,” he said in a recent statement.

The ICAEW estimated that Indonesia’s GDP would grow 5.1 percent next year, below the government’s target of 5.3 percent growth in 2019 as stated in the 2019 state budget.

Despite potentially facing a slower economic expansion rate next year, the ICAEW noted in its recently released report that Indonesia, along with the Philippines, would come out relatively unscathed from the ongoing trade tensions as the countries have weaker links to China than Singapore and Malaysia. (das)

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