Regional administrations have seen revenues decline by around 28 percent on average amid the coronavirus pandemic, said the Finance Ministry’s fiscal balance director general Astera Primanto Bhakti, adding that the pandemic had limited the ability of regions to fund priority programs.

“We know that this is a challenge for regions and therefore we’ve introduced this loan scheme to support economic recovery in the regions,” Astera told reporters in a press briefing on Friday.

Government-owned infrastructure financing firm PT Sarana Multi Infrastruktur (SMI) will act as a lender for the regional administrations and will allocate another Rp 5 trillion, thereby increasing the allocated budget to Rp 15 trillion this year for the loan scheme.

Last month, the government approved loans for the Jakarta and West Java administrations, the country’s top economic and industrial hubs, respectively, worth Rp 16.5 trillion, for this year and next year, to help revive economic activities.

The country’s gross domestic product (GDP), the broadest measure of goods and services produced, shrunk 5.32 percent year-on-year (yoy) in the second quarter, the steepest decline since the first quarter of 1999, Statistics Indonesia (BPS) announced on Wednesday.

President Joko “Jokowi” Widodo’s administration has allocated Rp 695.2 trillion of the state budget to stimulate the economy and strengthen the country’s pandemic response, but slow disbursement as a result of red tape is expected to delay the impact on the economy.

Government spending, which is expected to anchor the economy and boost people's purchasing power amid cooling private-sector activity, plunged 6.9 percent yoy in the second quarter.

Since the loan approval for the Jakarta and West Java administrations, several other regions namely East Java, Banten and East Nusa Tenggara have also expressed their interest in borrowing from the government, Astera went on to say.

“Banten has agreed on a Rp 4 trillion loan for this year and next year, while other regions are still in the discussion process,” he said. “This will be very important if regions do not have the capacity to implement their programs.”

Meanwhile, Finance Minister Sri Mulyani Indrawati is pledging to spend Rp 1.4 quadrillion in the second half of this year to bolster economic growth, as the government promises faster stimulus spending for the remainder of the year.

The government has disbursed 41.93 percent of a Rp 203.9 trillion budget for social protection, 13.43 percent of the Rp 120.6 trillion budget for business incentives and 26.3 percent of the Rp 123.47 budget for micro, small and medium enterprises (MSMEs) stimulus packages, according to data from the national economic recovery task force.

However, stimulus spending for health care, ministries and regional administrations, as well as corporate financing lagged as the government only disbursed 7.83 percent of the Rp 87.55 budget for health care and 7.9 percent of the Rp 106.1 trillion budget for ministries and regions. The government has yet to disburse any funds for corporate financing.

Sri Mulyani expects the economy to grow at no more than 0.5 percent, or even contract further in the third quarter, while fourth-quarter GDP growth is projected to be near 3 percent, making for a full-year expansion of zero to 1 percent.

“The President always instructs us to disburse the economic recovery budget immediately so that the economy can recover sooner in the third quarter,” the head of the national economic recovery task force Budi Gunadi Sadikin told reporters on Friday.

“We must expedite the process so that spending can increase by the end of the third quarter and can be completed by the fourth quarter,” he said.

On Wednesday, Bank Central Asia (BCA) economist David Sumual told The Jakarta Post that the country’s economic performance would depend heavily on the government spending acceleration.

“Although we expect a recovery in the third quarter, the economy is at risk of recession if the government fails to ramp up spending and boost consumer spending,” David said.