TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Rating agencies wary about deficit
For the first time in a more than a decade, Indonesia’s budget plan foresees no spending growth as the government aims to reduce the deficit, but that may not suffice to allay concerns about sovereign credit risk.
Change Size
People wearing protective face masks stand in line to scan a barcode before entering the Pondok Indah shopping mall, as the Indonesian capital reopens shopping malls with a policy requiring shoppers to show a coronavirus disease (COVID-19) vaccination certificate, in Jakarta, August 13, 2021. (Reuters/Ajeng Dinar Ulfiana)
T
he government has decided to lower its deficit substantially in 2022 so as to minimize risk to its sovereign debt ratings, but analysts warn that the country has not eliminated the threat just yet.
President Joko "Jokowi" Widodo announced on Monday that the 2022 deficit would stand at 4.85 percent of GDP, much lower than the 6.14 percent and 5.82 percent seen in 2020 and 2021, respectively.
The government must push the gap between state revenue and state expenditure back to below 3 percent in 2023, according to Law No. 2/2020, which was passed to fund pressing needs in response to the pandemic. The law only allows deficits in excess of the usual 3 percent cap for fiscal years 2020 through 2022.
Lowering the deficit is in line with expectations voiced by credit rating agencies, which have warned that a prolonged wide deficit would increase the country’s financing risk and its ability to pay off debt.
S&P Global Ratings noted that Indonesia’s planned 2022 deficit remained substantially above the pre-pandemic level, which may lead some elements of its fiscal position toward levels that could trigger a downward change in the sovereign credit rating.
The company said it believed the deficit could be smaller than announced, dropping to 4.2 percent of GDP, should faster economic growth lead to higher-than-expected revenue. If the deficit remained high, on the other hand, it would put pressure on other fiscal metrics, including the government’s debt and interest burden.
“Risks to the ratings include a weaker economic growth recovery driving a worsening of the fiscal position beyond our current projections, or Indonesia’s external metrics not improving as we forecast,” S&P Global Ratings analyst Andrew Wood told The Jakarta Post by email on Thursday.
