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Govt expects GDP growth near 5% in 2021 as pandemic still haunts economy
The government has proposed a budget deficit of between 3.21 percent and 4.17 percent of gross domestic product (GDP) in 2021.
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Finance Minister Sri Mulyani Indrawati (right) attends a working meeting with House of Representatives Commission XI in Jakarta on Feb. 19. (Antara/Aditya Pradana Putra)
T
he government expects Indonesia’s economy to grow between 4.5 percent and 5.5 percent in 2021 as it assumes the COVID-19 pandemic will still cast a shadow over business activity, according to the macroeconomic assumption for the 2021 state budget plan.
Finance Minister Sri Mulyani Indrawati said on Tuesday that the 2021 state budget would be mainly used to support economic recovery, including a rebound in the manufacturing industry, tourism and investment, as well as to improve the national healthcare system and social safety net.
“This is expected to revive the national economic contributors that are currently facing challenges from the COVID-19 [pandemic],” Sri Mulyani said in a House of Representatives plenary meeting on Tuesday.
The macroeconomic assumption is proposed to the House as the first step for the state budget drafting and deliberation.
In the macroeconomic assumption, the government proposed a budget deficit of between 3.21 percent and 4.17 percent of gross domestic product (GDP) in 2021 to support the economic recovery after the coronavirus pandemic. The deficit would be lower than the 5.07 percent of GDP projected for this year.
State spending is expected to reach 13.11 percent to 15.17 percent of GDP, while tax revenue is expected to reach 8.25 percent to 8.63 percent of GDP and nontax income 1.6 percent to 2.3 percent of GDP.
“With a focus on economic recovery and the challenges ahead, the reforms will be directed at healthcare, social security, education and direct transfers to regional administrations,” Sri Mulyani said, adding that the government would work to expand its tax base and boost income from excise.
The government had projected spending of Rp 2.54 quadrillion, or around 15 percent of the GDP, in the original 2020 state budget, while collecting Rp 2.23 quadrillion in revenue, resulting in a projected deficit at Rp 307.2 trillion or 1.76 percent of the GDP.
However, as the coronavirus pandemic hit the economy, the government now expects state revenue collection to drop by 10 percent, forcing the budget deficit to widen to 5.07 percent of GDP or Rp 852.9 trillion as the government set aside Rp 436.1 trillion in extra spending to cope with COVID-19 impacts.
The government also projected Tuesday that the rupiah exchange rate would move in the range of Rp 14,900 to Rp 15,300 a dollar next year and the yield of the benchmark 10-year bond would be within a range of 6.67 percent to 9.56 percent. The government expects inflation to hover at 2 percent to 4 percent.
Oil lifting in 2021 is expected at 677,000 to 737,000 barrels per day, while gas lifting is seen at 1.08 million to 1.17 million barrels of oil equivalent per day.
"The government is indicating that the economy would turn to normal by 2021 even though the outbreak is hard to predict," Josua Pardede, an economist at Bank Permata said. "We think this is too optimistic, as next year's target is almost the same as this year's projection."
The initial 2020 state budget plan assumed economic growth at 5.3 percent, higher than the 5.02 percent achieved last year. However, the government has lowered its target to 2.3 percent for this year under the baseline scenario, and to a contraction of 0.4 percent under the worst-case scenario, as the pandemic has disrupted business activity.
