The Indonesian government will revise a number of macroeconomic assumptions set in the 2016 State Budget (APBN 2016). This budget was approved on 30 October 2015 and therefore has begun to fall out of tune with the current economic reality. Indonesian Finance Minister Bambang Brodjonegoro said the indicators that need some rethinking are the Indonesian crude oil price, inflation, and the rupiah exchange rate.
In the original 2016 State Budget the Indonesian government expects to see an average USD $50 per barrel Indonesian crude oil price. However, with the world's benchmark oil prices (West Texas Intermediate and Brent) having been flirting with the USD $30 per barrel level since the start of 2016 while it remains unknown to what extent the newly "OPEC-Russia oil production freeze" will give rise to higher oil prices, Indonesia needs to cut its oil price assumption to the range of USD $30 to USD $40 per barrel in the revised 2016 State Budget.
Given that Indonesia generates earnings from oil exports (despite being a net oil importer), an adjustment made to the Indonesian crude oil price assumption in the State Budget will automatically imply changes to the whole structure of revenue and spending in the budget. A lower oil price assumption should also result in lower assumptions for non-tax revenue and income tax from the oil & gas sector. A lower oil price would also encourage lower prices for other commodities and therefore put additional pressure on non-tax and tax revenue. With fewer funds at hand there also emerges some concern about whether Indonesia can achieve its 5.3 percent (y/y) GDP growth target as government spending is a key pillar of support for accelerating economic growth.
Inflation is targeted at 4.7 percent (y/y) in Indonesia's 2016 State Budget. However, provided oil prices will not rise too significantly, inflation may be lower than estimated at the year-end. Last year, Indonesia's inflation eased to 3.35 percent.
The Indonesian rupiah exchange rate has strengthened to below the IDR 13,500 per US dollar level, significantly better than the government's estimate of IDR 13,900 in the 2016 State Budget. Although there remain risks of rupiah depreciation this year due to expectation of more interest rate hikes in the USA, China's economic slowdown (particularly if it devalues its yuan), and interest rate cuts conducted by Bank Indonesia, Finance Minister Brodjonegoro told reporters that the government may adjust the rate toward the IDR 13,500 per US dollar level.
Regarding economic growth, Brodjonegoro says the existing 5.3 percent (y/y) growth target in the 2016 State Budget is still in tune with reality.
Indonesia's State Budget (APBN):
in IDR trillion
¹ realization per 5 February 2016
Source: Bisnis Indonesia
Indonesian Macroeconomic Assumptions in the 2016 State Budget:
annual percent change
annual percent change
|Treasury Bills Interest Rate
USD $ per barrel
thousand barrels per day
|Natural Gas Lifting
barrel of oil equivalent/day