Finance Minister Sri Mulyani Indrawati said on Wednesday that the government expected the deficit to exceed its initial target of 1.76 percent of the country’s GDP as stipulated in the 2020 state budget.

“We’re still assessing the deficit, but there is still room for it to increase beyond the figure stipulated in this year’s state budget,” she told the press in Jakarta.

Given the challenges the government has faced since the beginning of this year, Sri Mulyani also said the budget deficit target was conservative, as the outbreak had prompted the government to use its fiscal instruments to provide a stimulus to ensure economic growth remained at the key 5 percent mark.

The pneumonia-like illness has spread to dozens of countries around the world and has prompted China to significantly reduce its economic activity to contain the outbreak. Economists have projected that the world’s second-largest economy will see its growth slow by up to 1 percentage point.

Sri Mulyani said previously that a drop of 1 percentage point in China’s growth would result in a drop of 0.3 to 0.6 percentage points in Indonesia’s economic expansion.

To mitigate such a risk, the government announced on Tuesday a Rp 10.3 trillion (US$742 million) stimulus package that is expected to boost consumer spending and reinvigorate the country’s tourism industry, which has been impacted by the deadly coronavirus outbreak.

The package will include stimuli for staple need programs and housing loan and down payment subsidies for the bottom 30 percent economic segment in the hopes it will be used immediately for consumption. The measures are considered necessary to ensure household spending growth rises above 5 percent after falling to 4.97 percent in the fourth quarter of last year.

The government will also grant Rp 3.3 trillion to 33 regional authorities to compensate for tax revenue losses from the tax exemptions given to hotels and restaurants for the next six months in a bid to increase tourism revenue.

At the same time, the government will also give Rp 298.5 billion in incentives to airlines and travel agents to attract foreign arrivals to Indonesia and another Rp 443.39 billion in discounts for domestic tourists visiting 10 tourist destinations.

Maybank Indonesia economist Myrdal Gunarto expected the state budget deficit to fall around 2 percent to the 2.2 percent range this year.

“[The widening deficit] is due to the tax relaxation and stimulus package the government plans to provide to boost economic growth,” Myrdal told The Jakarta Post via text message.

Last year’s state budget deficit stood at 2.2 percent of GDP, wider than the government’s target of 1.8 percent, after the revenue shortfall reached around Rp 207.9 trillion due to reduced tax collection as economic activity cooled.

Indonesia’s GDP grew by 5.02 percent last year, slower than the 5.17 percent recorded in 2018, as investment and exports softened.

To help reach the state revenue target of Rp 2.23 quadrillion this year, Myrdal suggested that the government should expedite its spending to give a multiplier effect to the economy.

Sri Mulyani said on Wednesday that she would ensure government institutions and regional administrations continued to spend their budgets.

“We hope that in February and March all government institutions and regional administrations can accelerate [their spending] to help compensate for declining tourist visits and international trade [due to the outbreak] in the first quarter of this year,” she said.

In the meantime, senior economist Aviliani suggested the government should widen its tax base.

“The government should utilize the data of the Home Ministry’s Population and Civil Registration Directorate General [Dukcapil] to expand the tax base so it can generate more tax revenue from new taxpayers instead of hunting for more from existing taxpayers,” she said.

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