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Indonesia to spend less than expected of COVID-19 budget by year-end

Jakarta Post - December 1, 2020

Adrian Wail Akhlas, Jakarta – The government expects to spend around 95 percent of the total COVID-19 stimulus budget by year-end, less than the initial target, as it struggles to ramp up state spending to support an economy still badly hit by the coronavirus outbreak.

The government is planning to spend only Rp 664 trillion (US$47 billion), 95.5 percent of the COVID-19 stimulus budget totaling Rp 695.2 trillion, by the end of 2020, according to Finance Minister Sri Mulyani Indrawati on Monday.

The government had spent 62.1 percent of the total budget, at Rp 431.54 trillion as of the end of November, with the remainder expected to be spent in December.

"We will continue to disburse the budget including allocating reserve funds for vaccines," she told reporters in a press briefing on Monday. "This will support the economy in the last month of 2020 after we accelerated spending in the third quarter."

Southeast Asia's largest economy plunged into recession for the first time in two decades as the government struggled to contain the outbreak and its economic fallout. The gross domestic product (GDP) is expected to shrink by 0.6 percent to 1.7 percent this year.

Government expenditure saw a 9.76 percent year-on-year (yoy) increase in the third quarter, a recoup from the second-quarter contraction of 6.9 percent yoy, driven by higher social and capital spending on efforts to fight the impact of the pandemic.

The government had been widely criticized for slow budget disbursement by health experts, economists and businesspeople during the early days of the pandemic.

Sri Mulyani stated in July that administrative issues had added challenges to the government's efforts to disburse COVID-19 funds swiftly.

According to the Finance Ministry, the government had only spent 41.4 percent, or Rp 40.32 trillion, of the Rp 97.26 trillion healthcare budget for the pandemic response as of Nov. 30.

The low spending is against the backdrop of Indonesia's continuous rise in COVID-19 cases, having passed the half a million cumulative coronavirus cases on Nov. 23.

"If the healthcare budget is not fully disbursed, then it will be used to finance vaccine procurement," Sri Mulyani said.

There is no set date as to when Indonesia will conduct mass vaccinations. State-owned pharmaceutical company PT Bio Farma is currently waiting for results from the phase three clinical trials of a COVID-19 candidate vaccine produced by Chinese pharmaceutical company Sinovac Biotech for the vaccine to be authorized for public use.

Meanwhile, the government has spent 88.7 percent, or Rp 207.8 trillion, of a total Rp 234.3 trillion budget allocated for social protection programs.

"We expect to spend 100 percent of the social protection budget by December this year," Sri Mulyani added.

The government has also spent Rp 98.76 trillion, 86 percent, of the Rp 114.8 trillion budget to support micro, small and medium enterprises.

It has also spent 54.9 percent of the total Rp 65.9 trillion budget to support regional administrations.

However, the government has spent only 38.5 percent, Rp 46.4 trillion, of the Rp 120.6 trillion in tax incentives.

The lowest spending is recorded in the budget for corporate financing, which includes state capital injections and loans to state-owned enterprises (SOEs). The government has only spent Rp 2 trillion, 3.2 percent, of the Rp 62.2 trillion budget for this purpose.

For next year, the government will focus on healthcare spending, according to Sri Mulyani.

"We are focusing on healthcare spending next year so that people can go about their businesses while the virus still exists," the finance minister said.

The government will also ramp up funding to conduct virus testing, tracing and treatment to better detect the virus spread in 2021, while also maintaining social protection programs so that people can be sufficiently protected while waiting for vaccinations during the outbreak, according to Sri Mulyani.

Bank Central Asia (BCA) economist David Sumual stated that the government should be open to the option of carrying over the stimulus to 2021 and should not necessarily aim to spend all of the stimulus this year as this may prove to be ineffective.

"The key question is no longer the size of the stimulus, but which sectors to support to make the stimulus more effective," David told The Jakarta Post on Tuesday.

Separately, Indonesian Chamber of Commerce and Industry (Kadin) deputy chairwoman Shinta Kamdani said recently that the government would need to continue providing the stimulus next year in a bid to support businesses and households.

"Any cut in the stimulus could have a detrimental effect on economic recovery in 2021," she said.

Source: https://www.thejakartapost.com/news/2020/12/01/indonesia-to-spend-less-than-expected-of-covid-19-budget-by-year-end.htm