Indonesia: Economic recovery, structural reform take center stage in 2021 state budget policy

  • Economic recovery and structural reform will be at the core of the government’s 2021 state budget policy as the COVID-19 pandemic paralyzes the economy and causes a health and social crisis in Indonesia.
  • “Structural reform must also be carried out in education, health, social protection and budgeting and the taxation system,” President Joko “Jokowi” Widodo said in his annual state budget speech before the People’s Consultative Assembly in Jakarta on 14 Aug 20.
  • Jokowi in his state of the nation address earlier in the day also reiterated the need to carry out regulatory reform to cut red tape that has hampered investment in the country.
  • The government expects state revenue to reach IDR1.77qd in 2020 while state expenditure is expected to be IDR2.74qd. Therefore, the budget deficit is set at IDR971.2tr, 5.5% of gross domestic product (GDP) in 2021 (2020e: 6.34%).
  • It also pledges to continue 2020’s stimulus allocation into 2021, which will include funding for social protection and micro, small and medium enterprises (MSMEs) support, while fiscal relaxation will be implemented again to support the government’s agenda.
  • “The 2021 economic projection, although recovering, is dependent on the COVID-19 containment,” Finance Minister Sri Mulyani Indrawati told a virtual press briefing.
  • The government will also continue next year its cooperation with Bank Indonesia (BI) to finance the budget deficit.
  • As debt monetization is only being applied in 2020, the central bank is expected to remain the standby buyer for Indonesian government bonds. “We will maintain BI’s ability to participate in auctions to create a stable and balanced supply and demand,” Sri Mulyani said.

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