Indonesia 2022 deficit to hit below 4% despite subsidy hike: Govt

  • The Finance Ministry is confident that the state budget deficit will drop below 4% of gross domestic product (GDP) in 2022, pointing to faster-than-planned fiscal consolidation despite increased spending to shield Indonesians from surging global energy prices.
  • After a second downward revision, the ministry now expects the difference between state revenue and spending to reach just 3.92% of GDP, much lower than its previous projection of 4.5% as well as the budget plan’s original assumption of 4.85%.
  • The latest figure allows the government to cut bond issuance to IDR757.6tr, a fifth of the amount stated in the initial budget plan for 2022.
  • “The much lower deficit shows that our state budget is healthier [due to] our strategy for dealing with volatile conditions, especially in the financial sector, with global inflation and rising interest rates,” Finance Minister Sri Mulyani Indrawati told lawmakers on 1 Jul 22.
  • The ministry’s latest estimates suggest that actual revenue could reach IDR2.43qd, or 7.5% higher than the revised target in the regulation, which could mean an even lower deficit.
  • Tax revenue, including income from customs and excise, is expected to reach Rp 1.92 quadrillion, while non-tax revenue is projected to reach IDR510.9bn.
  • These figures exceed 2021’s achieved income by 24% and 11%, respectively. The significant growth in revenue was largely due to surging commodity prices and recovery in tax collection across all sectors as the domestic economy rebounded, Sri Mulyani said.
  • In 1H22, she added state revenue jumped nearly 50% y/y. On the expenditure side, Sri Mulyani explained that the increase was largely the result of higher spending on energy subsidies and energy compensation, the latter paid to state-owned oil and gas giant Pertamina and state-owned electricity firm PLN.
  • The rise in spending was necessary to keep fuel and electricity affordable despite the global surge in energy prices, she underlined. “This was all done as a cushion to protect the people against [external] shocks,” Sri Mulyani said.
  • The government has raised its budget allocation for energy subsidy and compensation to IDR520tr, up from originally IDR152.5tr. Sri Mulyani said in May 22 that the increase consumed most of the country’s windfall revenue and prompted spending cuts in some areas.

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