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Government banks on unused 2022 funds to minimize borrowing next year
Finance Minister Sri Mulyani Indrawati said on Thursday that the government was deliberately saving up some unused budget funds to be carried over to 2023, which would reflect in a high SILPA account at the end of this year.
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he government is in no hurry to spend unused funds budgeted for this year, planning instead to use them to beef up the state treasury and thus reduce its reliance on debt financing next year, as borrowing gets more costly amid soaring interest rates and heightened uncertainty.
Finance Minister Sri Mulyani Indrawati said on Thursday that the government was deliberately saving up some unused budget funds to be carried over to 2023, which would reflect in a high SILPA account at the end of this year.
“There will be volatility affecting financing in 2023, which is why we need to minimize the risk by maintaining a certain cash buffer,” Sri Mulyani told reporters during a press briefing broadcast through YouTube.
“As you can notice, our SILPA account is bigger; that’s because we are managing risks for the next fiscal year,” she added.
Read also: 2023 Budget Law aims for 2.84 percent shortfall to escape commodity-prices trap
The Federal Reserve (Fed) has raised its interest rate six times in a row, lifting borrowing costs to a multiyear high and prompting other central banks, including Bank Indonesia (BI), to maintain the gap by hiking their own benchmark rates.
The hike has sent yields soaring on government bonds of many countries, including Indonesia, making debt financing more costly. Indonesia’s 10-year government bond yield peaked at more than 7.4 percent in October, up from around 6.4 percent a year earlier.
The government’s 2023 state budget plan assumes that the yield may rise to 7.9 percent.
Luky Alfirman, the ministry’s former financial risk management director general, said in the same briefing that an increase in the cost of debt funding was unavoidable next year, but a large cash buffer of unspent funds from this year would greatly help reduce the impact.
Despite borrowing becoming more costly worldwide, he said, Indonesia may be in a better position than other countries, thanks to its recent fiscal consolidation, which allowed for the budget deficit to fall back below 3 percent of gross domestic product (GDP) next year, after two years of above the usual threshold because the government provided leeway to finance its COVID-19 response.
“This means our financing needs decline. With the high cost of funds next year, reducing bond issuance will be a good sign for us,” Luky said.
The deficit next year is estimated to be 2.84 percent of the GDP, much lower than this year’s revised figure of 3.92 percent of the GDP.
Read also: Govt prepares for 'turmoil' with prudent 2023 budget
The ministry estimates that debt issuance for this year to be significantly lower than initially planned, as it projects this year’s deficit may be much lower than the revised figure, mainly due to greater-than-expected tax revenue and a revenue windfall from high commodity prices.
Isa Rachmatarwata, the ministry’s budget director general, said the government had no plan to reduce spending specifically to save funds for next year, but it still encouraged ministries and agencies to be disciplined with their respective allocations.
He said the ministry still aimed for a spending realization as high as last year’s, which would be above 90 percent. So far, it stood at around 75 percent.
