The government of Indonesia is optimistic that realization of government spending through ministries and other government agencies can reach 95-96 percent of the target (that was set in the Revised 2016 State Budget) at the end of 2016. If indeed achieved, then it should manage to push gross domestic product growth of Indonesia slightly above 5 percent (y/y) both in the fourth quarter and full-year 2016 through the multiplier effect. However, is above-mentioned optimism about government spending realistic?
Total government spending in the Revised 2016 State Budget (APBN-P 2016) was set at IDR 2,082.9 trillion (approx. USD $155.4 billion). Of this total target about IDR 767.8 trillion is allocated to the spending programs of Indonesia's ministries/agencies, while another IDR 776.3 trillion is transferred to the regional governments and villages. The remaining IDR 538.9 trillion is allocated to non-ministry/agency spending.
Askolani, the Finance Ministry's Director General for Budgeting, said government spending will improve in the last quarter of the year (a normal phenomenon), especially spending conducted by ministries and the other government agencies. The central government will issue IDR 214.5 trillion (approx. USD $16 billion) worth of government securities (on the domestic market and abroad) to finance part of the spending.
However, considering these ministries/agencies only managed to spent 62.6 percent of the full-year target during the first ten months of 2016, they have to be careful to safeguard "quality spending" rather than spending for "spending's sake".
It is also very unlikely to see spending realization by ministries/agencies accelerate dramatically from 62.6 percent of the full-year target in the January-October 2016 period to around 95-96 percent by the year-end (ministries/agencies only have two months to spend these large amounts of funds). Provided it involves quality spending then a realization rate of between 70 and 80 percent will be sufficient to support accelerating economic growth.
Askolani's statement that a realization rate of 95-96 percent is possible should therefore be seen as an effort of a government official to give positive signals to gain markets' trust.
A positive development, however, is that realization of ministries/agency spending at 62.6 percent in January-October 2016 is better compared to the 57.2 percent that was achieved in the same period one year earlier. Quality government spending should boost the domestic economy through the multiplier effect. Indonesia's GDP is expected to grow in the range of 5.0 - 5.1 percent (y/y) in full-year 2016.