(Jakarta, 3rd) In the face of global economic risks, the Indonesian government has lowered this year's economic growth forecast from 5.2% to 5%, and below-target tax revenues are also expected to result in a fiscal deficit larger than anticipated. This may force the Indonesian government to make adjustments to several large-scale expenditure projects.
On Tuesday (July 1), Indonesia's Finance Minister Sri Mulyani delivered a mid-year fiscal report to parliament. She said the government will continue to strive to mitigate the risks brought by global uncertainties to ensure that the 5% economic growth forecast "remains achievable."
The latest forecast data from Indonesia’s finance ministry also shows this year’s government tax revenue is at 2,706.9 trillion rupiah (about 703.8 billion ringgit), reaching only 94.9% of the official target.
Sri Mulyani explained that reduced tax revenue from bulk commodity trade, as well as a narrowing of the government's expanded VAT policy, both contributed to this year’s lower-than-expected tax collections.
Indonesia’s fiscal deficit this year is also projected to expand from the equivalent of 2.5% of GDP to 2.78%. This is already close to the statutory cap of 3%.
Indonesia is currently in urgent need of funds. Since taking office, the Prabowo administration has rolled out several large-scale social policies, including a free nutritious meals program for children, the establishment of 80,000 village cooperatives, and the construction of 3 million affordable homes for the public each year. However, fiscal tightening may force the authorities to adjust these plans.
Wijayanto Samirin, a senior economist at Paramadina University in Jakarta, said in an interview with Lianhe Zaobao that with lower tax revenues and limited space for debt financing, the Indonesian government “has no choice but to cut spending.”
“The current forecast is still too optimistic. Economic growth of 4.6% to 4.8% would be more realistic.”
Siwage Dharma Negara, senior fellow and coordinator of the Indonesia Studies Programme at the ISEAS-Yusof Ishak Institute in Singapore, pointed out that Indonesia’s downward revision of its growth forecast and declining tax revenue suggest that the government’s ability to stimulate growth through expansionary fiscal policy has diminished.
Siwage stated in an interview: “Authorities are trying to carve out new sources of tax revenue, such as levying taxes on e-commerce and raising taxes on natural resource exports. The government is also issuing bonds and seeking bilateral and multilateral loans, but the cost of borrowing is gradually increasing, which in the long run will make Indonesia's finances more vulnerable.”
In February this year, the Indonesian government established the sovereign wealth fund Danantara to optimize state-owned enterprise investments. The Danantara building officially opened for operations on Monday (June 30), and authorities also announced that this month, foreign banks will inject $10 billion (about S$1.27 billion) in funding.
Siwage said that to what extent Danantara can drive Indonesia's future economic development remains unclear. The current role played by Danantara also falls short of government expectations. “Foreign investors are still watching its governance and the professionalism of its management team. Danantara needs time to achieve tangible results and build the confidence of investors.”
Wijayanto also said that securing a $10 billion injection is certainly good news, but “before the funds are actually received, the risks of the injection not being implemented remain high.”
“Danantara should develop a long-term strategic positioning; forcing it to deliver short-term changes may very likely end in failure... As long as it is free from political interference, winning the confidence of international investors will only be a matter of time.”
On Tuesday (July 1), Indonesia's Finance Minister Sri Mulyani delivered a mid-year fiscal report to parliament. She said the government will continue to strive to mitigate the risks brought by global uncertainties to ensure that the 5% economic growth forecast "remains achievable."
The latest forecast data from Indonesia’s finance ministry also shows this year’s government tax revenue is at 2,706.9 trillion rupiah (about 703.8 billion ringgit), reaching only 94.9% of the official target.
Sri Mulyani explained that reduced tax revenue from bulk commodity trade, as well as a narrowing of the government's expanded VAT policy, both contributed to this year’s lower-than-expected tax collections.
Indonesia’s fiscal deficit this year is also projected to expand from the equivalent of 2.5% of GDP to 2.78%. This is already close to the statutory cap of 3%.
Indonesia is currently in urgent need of funds. Since taking office, the Prabowo administration has rolled out several large-scale social policies, including a free nutritious meals program for children, the establishment of 80,000 village cooperatives, and the construction of 3 million affordable homes for the public each year. However, fiscal tightening may force the authorities to adjust these plans.
Wijayanto Samirin, a senior economist at Paramadina University in Jakarta, said in an interview with Lianhe Zaobao that with lower tax revenues and limited space for debt financing, the Indonesian government “has no choice but to cut spending.”
“The current forecast is still too optimistic. Economic growth of 4.6% to 4.8% would be more realistic.”
Siwage Dharma Negara, senior fellow and coordinator of the Indonesia Studies Programme at the ISEAS-Yusof Ishak Institute in Singapore, pointed out that Indonesia’s downward revision of its growth forecast and declining tax revenue suggest that the government’s ability to stimulate growth through expansionary fiscal policy has diminished.
Siwage stated in an interview: “Authorities are trying to carve out new sources of tax revenue, such as levying taxes on e-commerce and raising taxes on natural resource exports. The government is also issuing bonds and seeking bilateral and multilateral loans, but the cost of borrowing is gradually increasing, which in the long run will make Indonesia's finances more vulnerable.”
In February this year, the Indonesian government established the sovereign wealth fund Danantara to optimize state-owned enterprise investments. The Danantara building officially opened for operations on Monday (June 30), and authorities also announced that this month, foreign banks will inject $10 billion (about S$1.27 billion) in funding.
Siwage said that to what extent Danantara can drive Indonesia's future economic development remains unclear. The current role played by Danantara also falls short of government expectations. “Foreign investors are still watching its governance and the professionalism of its management team. Danantara needs time to achieve tangible results and build the confidence of investors.”
Wijayanto also said that securing a $10 billion injection is certainly good news, but “before the funds are actually received, the risks of the injection not being implemented remain high.”
“Danantara should develop a long-term strategic positioning; forcing it to deliver short-term changes may very likely end in failure... As long as it is free from political interference, winning the confidence of international investors will only be a matter of time.”