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Jakarta Post

Government, lawmakers set 2021 state budget deficit at up to 4.7% of GDP

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Wed, July 15, 2020   /   01:12 pm
Government, lawmakers set 2021 state budget deficit at up to 4.7% of GDP Finance Minister Sri Mulyani Indrawati (front) hands over the government's response to the draft 2021 state budget to House of Representatives Speaker Puan Maharani (right) during a plenary meeting in Jakarta on June 18. (Antara/Muhammad Adimaja)

The government and the House of Representatives have agreed in principle on 2021 state budget assumptions with a deficit of 4.7 percent of gross domestic product (GDP) to bolster the economy from the coronavirus-induced recession.

The budget deficit is expected to reach 3.21 percent to 4.17 percent of GDP next year, but the government can widen the fiscal deficit to 4.7 percent if needed to fully support the recovery, said House Budget Committee vice chairman Muhidin Mohamad Said.

“The government’s 2021 work plan is being directed to support economic recovery from the COVID-19 pandemic, boost human development, as well as industrial and tourism development,” among other things, he told a plenary meeting on Tuesday.

President Joko “Jokowi” Widodo will announce the detailed 2021 state budget, including exact revenue and expenditure figures, during his annual speech on Aug. 16.

The government and the House agreed that the assumption underpinning the 2021 state budget would see state spending reach 13.11 percent to 15.17 percent of GDP, while tax revenue is expected to reach 8.25 percent to 8.63 percent and nontax income 1.6 percent to 2.3 percent of GDP.

Indonesia’s economy could enter a recession in the third quarter this year as the government expects GDP to shrink by 3.8 percent to 5.1 percent in the second quarter and to decline by a further 1 percent in the third quarter.

If the economy shrinks in the third quarter, it will mark Indonesia’s first recession since the 1998 Asian financial crisis. A recession happens when an economy shrinks in two consecutive quarters.

“Indonesia’s economic outlook will now depend on the ability to stimulate recovery after a drastic deterioration in economic activity,” Finance Minister Sri Mulyani Indrawati told lawmakers in a hearing on July 9.

She expects the economy to contract 0.4 percent this year under the worst-case scenario or grow 1 percent under the baseline scenario.

The government expects the fiscal deficit to reach 6.34 percent this year as it allocates Rp 695.2 trillion (US$48.23 billion) in stimuli to strengthen the country’s healthcare response and bolster the economy amid the pandemic.

Officials are now looking to accelerate spending to boost economic recovery and strengthen the country’s virus response after receiving criticism from President Joko “Jokowi” Widodo as well as from business and health communities for the slow disbursement of stimulus funds.