Consolidation of the fiscal side

INDONESIA - Report 01 Nov 2021 by Cyrillus Harinowo

The Indonesian government is in a balancing act toward fiscal consolidation in the midst of its effort to further stimulate the economy. By law, the budget deficit should be set below 3% starting in 2023.

So far, defying the skeptics, the outcome is encouraging, even though it might be derailed by the rise in oil prices, which could affect the level of the oil subsidy. One optimistic development is the encouraging rise in government revenue, while expenditures have been kept under control, even though the spending level has reached more than 50% of the budgeted level​, which is good for economic activity. According to data as of the end of September 2021, the budget deficit this year stands at 2.74% of GDP, compared to the planned 5.70% of GDP by year-end. In the remaining quarter of 2021, the likelihood is that the Indonesian budget deficit may reach around 4% of GDP, far below the agreed level.

If the budget deficit reaches approximately 4% of GDP, then it will be easier for the Ministry of Finance to aim for a budget deficit below 4% of GDP in 2022, which will pave the way for lowering it further, to below 3% by 2023.

Given this situation, it was really a source of comfort to see that Indonesian exports have continued to increase in the past few months. The Central Board of Statistics reported that the trade balance in September 2021 remained in a large surplus, albeit lower than the previous month. Exports for September reached $20,604.4 million while imports were $16,233.8 million. The trade surplus for September 2021 stood at $4,370.6 million. Cumulative exports from January to September 2021 reached $164,287.7 million, a record for the period. Cumulative imports for the same period reached $139,215.8 million, for a cumulative trade surplus for the first nine months of 2021 of $25,071.9 million.

The Central Board of Statistics also reported the Consumer Price Index for the month of September, which resulted in deflation of 0.04%. With that monthly deflation, Y/Y inflation in September 2021 reached 1.60%, a level below the target inflation corridor of the Central Bank. With that level of Y/Y inflation, Bank Indonesia decided to keep the benchmark interest rate constant at 3.50% at its Monetary Policy Meeting on October 21, 2021. This policy, together with other measures by the Central Bank, was meant to continue to keep the economy moving forward while at the same time keeping market sentiment on Indonesia positive.

Now read on...

Register to sample a report