Indonesia's State Budget Deficit Approaching Legally Mandated Cap
A Finance Ministry official said Indonesia's state budget deficit is likely to exceed the projected IDR 300 trillion (approx. USD $22 billion) in 2015, pushing the deficit to 2.7 percent of Indonesia's gross domestic product (GDP), dangerously close to the maximum 3 percent of GDP cap that is set by a 2003 law. In the original 2015 State Budget the government targeted a budget deficit of 1.9 percent of GDP. This target was then revised to 2.2 percent in September. However, another revision is needed due to poor tax revenue collection.
A law implemented in 2003 sets a maximum limit of 3 percent of GDP on Indonesia's budget deficit. This law is part of Indonesia prudent fiscal policy approach after the traumatic experiences of the Asian Financial Crisis in the late 1990s. It is unclear, however, what the exact consequences are for the government in case this cap is breached (the Indonesian parliament may decide to launch an impeachment bid).
A key reason that explains Indonesia's rising budget deficit is disappointing state revenue. In the first ten months of 2015, the government only collected around IDR 774.5 trillion (approx. USD $57.4 billion) worth of tax money, which is equivalent to only 60 percent of the full-year target (this figure excludes excise and duties). This leaves only two months to collect the remaining 40 percent, a seemingly impossible task. Sigit Priadi Pramudito, Director General of Taxation at the Finance Ministry, said the government may achieve 88 percent of the tax collection target by the year-end.
Another factor is the fragile rupiah. Amid looming further monetary tightening in the USA as well as the economic slowdown of China, the rupiah has weakened nearly 9 percent against the US dollar so far this year. This has resulted in weaker revenue from value-added tax (VAT) from imports. Indonesian imports fell 19.7 percent (y/y) to USD $107.9 billion in the first nine months of 2015.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.39 percent to IDR 13,550 per US dollar on Friday (06/11).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Earlier, Indonesia's Finance Ministry stated that Indonesia will seek loans from the World Bank, Asian Development Bank (ADB) and other multilateral agencies to cover the 2015 budget deficit.
Indonesian Chief Economics Minister Darmin Nasution said the budget deficit will be discussed at the next cabinet meeting.
Budget Deficit Indonesia:
(percent of GDP)
Source: World Bank
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