Dion Bisara & Tito Summa Siahaan – To better reflect the surge in global oil prices and next month's planned increase in the subsidized fuel price and electricity rates, the government has indicated revisions in the 2012 budget for submission to the House of Representatives this week.
In the proposal, a copy of which was obtained by the Jakarta Globe on Wednesday, the Finance Ministry revised the oil price assumption to $105 a barrel from the $90 target set in October. Crude oil in New York was trading at $105.14 on Wednesday. The government also proposed raising the subsidized price on widely used low-octane gasoline to Rp 6,000 (65 cents) a liter from Rp 4,500 starting in April.
The government needs to raise the fuel price to contain ballooning subsidy costs in the state budget. The cost for subsidies including gasoline and cooking fuel was revised up to Rp 137.4 trillion from the original forecast of Rp 124 trillion. The electricity subsidy was increased to Rp 93.05 trillion from Rp 44.9 trillion.
The oil price assumption is one of the six parameters used by the government to calculate its budget. The other five assumptions are economic growth, inflation, yields on three-month bills, the rupiah exchange rate against the dollar and oil production.
Juniman, an economist at Bank Internasional Indonesia, said the latest proposals for the budget reflected a more realistic picture of the country's economy because global oil prices were higher. The government normally submits its budget revision proposal to lawmakers around July or August.
The Finance Ministry revised the inflation rate target to 7 percent this year from the 5.3 percent pace set in the original budget, and the economic growth forecast was cut to 6.5 percent from 6.7 percent.
The rupiah is assumed to trade at 9,000 per dollar, slightly weaker than the original assumption of 8,800 per dollar, while the oil production forecast was cut to 930,000 barrels per day from the 950,000 originally.
Inflation was at its slowest pace in 23 months, at 3.56 percent, in February. The economy expanded last year by 6.5 percent, the fastest pace since 1996.
Juniman said that the government's new economic growth forecast was a bit optimistic. He has cut his 2012 growth forecast to 6.3 percent, which is in line with the lower end of the central bank's range of 6.3 to 6.7 percent, citing slowing global demand.
Economists say that raising the subsidized fuel price is socially and politically sensitive in a nation where almost half of the population of 240 million people lives on less than $2 a day.
"The proposed budget is being discussed with the parliament. We believe that the parliament is very likely to approve the fuel price hike of Rp 1,500 – as the government is already prepared to shield the poor households from the fuel price impact by handing out cash transfer," said Anton Gunawan, an economist at Bank Danamon in Jakarta.
The government forecast the budget deficit this year to widen to Rp 190.1 trillion, or 2.23 percent of the country's gross domestic product, from the original forecast of Rp 124 trillion, or 1.5 percent of GDP. To help plug the widening deficit, the government will raise its net bond sales this year by Rp 25 trillion to Rp 159.6 from the original forecast of Rp 134.6 trillion.
The country's foreign-exchange reserves are forecast to rise to $122.3 billion this year, up from $110.1 billion last year, according to the document.
[With additional reporting by Aloysius Unditu.]