The Finance Ministry of Indonesia released a statement on Sunday (03/01) saying that Indonesia failed to meet the majority of economic targets that were set in the (revised) 2015 State Budget. Primary reasons for the weaker-than-targeted performance are low commodity prices, sluggish global economic growth, China's economic slowdown, and capital outflows triggered by the tighter monetary policy of the US Federal Reserve. Only realization of inflation and the treasury yield were in line with the government's targets.
Although it is a setback for Indonesian President Joko Widodo, who pledged to boost economic growth by increasing infrastructure development and cutting bureaucracy, the failure to meet most economic targets is not a surprise. Moreover, Indonesia is not the only country in the world that has been plagued by tough global conditions and volatile capital flows in 2015.
Although the Indonesian government initially projected an economic growth pace of 5.7 percent in the 2015 State Budget, the Finance Ministry said gross domestic product (GDP) expansion will most likely reach 4.7 percent only. This would be the slowest growth pace since 2009. The official 2015 GDP growth figure will be released by Indonesia's Statistics Agency (BPS) in a couple of months.
The budget deficit of Indonesia is estimated larger-than-expected at 2.84 percent of the nation's GDP in 2015, far above the initial target of 1.9 percent (and not far from the legal limit of 3 of GDP that was implemented in 2009 in order to avert a debt crisis such as happened during the Asian Financial Crisis in the late 1990s). According to data from the Finance Ministry, the government spent IDR 1,810 trillion (approx. USD $132.1 billion) last year, while revenue is estimated at IDR 1,492 trillion (approx. USD $108.9 billion). Weak government revenues are the result of poor tax collection. The government is estimated to have collected only 83 percent (IDR 1,236 trillion) of the 2015 target due to the slowing economy and also because the government set an overly ambitious tax collection target.
The Indonesian rupiah averaged IDR 13,392 per US dollar over the year 2015, much weaker than the IDR 12,500 per USD target, due to capital outflows on concern about the US interest rate hike and devaluation of China's yuan.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
The Indonesian crude oil price only fetched about USD $50 per barrel in 2015, below the USD $60 target set in the 2015 State Budget (implying curtailed revenue collection from the oil & gas sector). Meanwhile, the nation's crude oil production is estimated at 779,000 barrels per day (bpd) last year, below the 825,000 bpd target. This was partly blamed on disruptions at the Cepu block (part of the Banyu Urip field) in East Java. Meanwhile, gas production (at 1.195 million barrels of oil equivalent) in 2015 also missed its target (1.221 million boepd).
To finish on a positive note, however, inflation in 2015 was much lower than initially expected. The Finance Ministry puts Indonesia's 2015 inflation realization at 3.1 percent, far below the government's target of 5 percent set in the 2015 State Budget.
Meanwhile, the yield on the government's three-month treasury notes was down to 5.97 percent from a targeted 6.2 percent on the back of strong demand from foreign investors. This managed to somewhat ease pressure on the government's budget deficit.