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Indonesia's budget deficit swells to over 3 percent of GDP in August

Jakarta Post - September 22, 2020

Adrian Wail Akhlas, Jakarta – Indonesia's state budget deficit swelled in August on the back of falling state revenue collection and increased government spending aimed at stimulating an economy reeling from the coronavirus pandemic.

The country's fiscal deficit reached Rp 500.5 trillion (US$33.96 billion) as of August, or 3.05 percent of gross domestic product (GDP), driven by higher government and stimulus spending, Finance Minister Sri Mulyani Indrawati said.

This is the first time the state budget deficit has reached beyond 3 percent since the government relaxed the legal limit through the Law No. 2/2020 to help fund the fight against the pandemic.

"The countercyclical policies pursued by the government through fiscal stimulus has widened the budget deficit," Sri Mulyani told reporters in a virtual presser on Tuesday. "We will continue to use the budget to minimize the [economic] fallout of the pandemic but it must be coupled with recovery in consumption and business investment for the economy to fully recover."

The government expects the budget deficit to reach 6.34 percent this year, up from the initial deficit cap of 3 percent, as it allocated Rp 695.2 trillion worth of stimulus to rescue the economy.

It now expects the economy to shrink by 0.6 to 1.7 percent this year, which will be the first annual economic contraction since the 1998 Asian financial crisis, as the outbreak hits consumption and business activity.

Finance Ministry data show that the country had collected Rp 1.03 quadrillion in state revenue as of August, marking a decrease of 13.1 percent year-on-year (yoy) following a drop in both tax revenue and non-tax income. The collected figure is about 60.8 percent of this year's revenue target.

Tax revenue, the main source of income for the government, fell 15.6 percent yoy to 676.9 trillion due to a sharp fall in corporate taxes and import taxes amid slowing economic activity.

Meanwhile, state expenditure rose 10.6 percent yoy to Rp 1.53 quadrillion during the same period, or 56 percent of this year's target. Central government expenditure rose 14 percent to Rp 977.3 trillion driven by higher social and stimulus spending.

It had spent around 36 percent of the Rp 695.2 trillion COVID-19 stimulus budget as of Sept. 19, Sri Mulyani went on to say, adding that the government would continue to "closely monitor" its spending to help households and businesses recover from the misery brought by the pandemic.

Source: https://www.thejakartapost.com/news/2020/09/22/indonesias-budget-deficit-swells-to-over-3-percent-of-gdp-in-august.html