Indonesia proposes 2025 budget targeting narrower deficit
2024.08.16 07:02
By Stefanno Sulaiman, Gayatri Suroyo and Fransiska Nangoy
JAKARTA (Reuters) – Indonesia’s outgoing government submitted a 2025 budget plan to parliament on Friday targeting a narrower deficit than this year, which analysts said signalled Southeast Asia’s largest economy would remain fiscally prudent under its next president.
The budget proposal worth 3,613.1 trillion rupiah ($230 billion), prepared by ministers under outgoing President Joko Widodo and president-elect Prabowo Subianto’s economic team, projects a deficit of 2.53% of GDP next year, narrower than this year’s expected 2.7%.
Total expenditure would be almost 6% higher than the forecast for this year.
“We must continue structural reforms, maintain healthy and credible fiscal policy, and enhance collaboration of fiscal, monetary and finance policy,” Jokowi, as the president is widely known, told parliament.
Investors have been paying close attention to Prabowo’s first budget, concerned that he might abandon strict fiscal rules after hinting in his speeches at an appetite for taking on more debt in order to achieve a GDP growth target of 8%.
By law, the government must keep the annual fiscal deficit under 3% of GDP, while the outstanding public debt-to-GDP ratio cannot exceed 60%. That ratio is currently at 39%.
“I think (the proposal) clarifies that the new government would be fiscally prudent, unlike the rumours about increasing the debt-to-GDP ratio to 50% in next five years that could translate to (an annual deficit of) over 4% to 5% of GDP,” said Handy Yunianto, head of fixed income at brokerage Mandiri Sekuritas.
Handy said the deficit level was “positive for bond investors.”
Economist Ryota Abe at Sumitomo Mitsui (NYSE:) Banking Corp said that the plan was roughly as expected but that the market still wants to see what policies Prabowo’s pick for finance minister pursues.
“My specific focus is on how the next president Prabowo will try to accelerate Indonesia’s GDP growth to 8% without damaging fiscal policy and investors’ risk appetite,” he said.
Prabowo, who attended the parliamentary session as defence minister, did not respond when asked whether he would change the budget once he takes over from Jokowi in October.
ACHIEVABLE GDP GROWTH TARGET
The new budget proposal assumes the economy expands 5.2% in 2025, similar to the forecast range for GDP growth this year of 5% to 5.2%.
Brian Lee, an economist with Maybank Investment Banking Group, said that growth target looked achievable in view of the expansionary plans in the budget and an expected monetary easing.
Inflation in the proposal was projected at about 2.5% next year, the midpoint of the central bank’s target range.
Based on GDP, inflation and other assumptions, the government has projected total revenues of 2,996.9 trillion rupiah next year, up 7% from this year’s outlook.
The proposal called for a new excise tax on packaged sugary drinks but it did not go into details.
On the spending side, 71 trillion rupiah is allocated to Prabowo’s flagship “Free Nutritious Meals” programme, unchanged from previous announcements on the programme.
The programme is set to be implemented in stages, first in regions with high rates of poverty and stunted child growth, according to the proposal submitted to parliament.
A total of 400.3 trillion rupiah is proposed for infrastructure spending, including for the continued construction of Indonesia’s new capital city.
The proposal also calls for reform of the government’s energy subsidy policy, moving away from blanket subsidies to targeted distribution to individual beneficiaries.
($1 = 15,686 rupiah)
