Jakarta – The House of Representatives on Thursday approved a revised 2008 state budget projecting lower growth and a bigger fiscal deficit amid a weakening global economy.
Even after the major changes the budget remains vulnerable to downside risks as the global economy is flirting with a deep recession amid a high inflationary environment caused by high energy and food prices.
The revised budget lowers the growth target from 6.8 percent as set in the original budget to 6.4 percent and raises the fiscal deficit by almost 30 percent to Rp 95 trillion (US$10.4 billion). Finance Minister Sri Mulyani Indrawati said setting macroeconomic assumptions and aggregate revenue and spending estimates in the budget was like shooting at a moving target.
"Therefore, this global economic uncertainty requires better cooperation between the government and the Parliament in responding to new developments with appropriate and quick contingency measures," Sri Mulyani told the plenary session.
The government, Sri Mulyani added, would continue to monitor the situation and had prepared a set of contingency measures to cope with any rapid deterioration of the economic condition. "But we need good cooperation on the part of the House," she said.
She said the budget had needed significant revision so the macroeconomic assumptions used for revenue and spending estimates would be adequately realistic and give the market the right signal on fiscal sustainability.
The budget sets aside Rp 13.5 trillion in contingency funds to cope with an unexpected rise in spending caused by bigger fuel, electricity and food subsidy allocations and other expenditures.
The minister acknowledged the budget was highly vulnerable to significant changes in oil prices. "The average oil price assumption has been raised to $95 which consequently doubles fuel and electricity subsidies to Rp 187 trillion. Things could get worse still if oil prices rise to more than $100 per barrel."
She said the government had prepared a set of contingency measures to ready for a potential ballooning of fuel subsidies, including severe restrictions on the use of subsidized gasoline through the application of smart cards.
Other macroeconomic assumptions used by the revised budget include Bank Indonesia's benchmark interest rate of 7.5 percent and an average crude oil production of 927,000 barrels per day (bpd).
"This crude oil lifting estimate is still rather optimistic given the natural declining output of old wells and because our daily output over the last three days averaged only 916,000 barrels," Sri Mulyani said.
Since Indonesia is already a net oil importer, a lower crude oil lifting means larger imports and consequently bigger subsidies.
The 2008 budget revisions also raise government borrowing from the domestic and international debt markets (bonds) to Rp 117.8 trillion from the Rp 91.6 trillion originally planned. (uwi)