Karlis Salna – Indonesia's cabinet is discussing amending a legally imposed cap on the budget deficit, which would allow the government to spend and borrow more to stimulate growth in Southeast Asia's biggest economy.
President Joko Widodo is holding talks on the matter, although for now, the current annual ceiling of 3% of gross domestic product remains, Finance Minister Sri Mulyani Indrawati said Wednesday in Jakarta.
The government is required by law not to breach the deficit cap, a rule introduced in 2003 in the aftermath of the Asian financial crisis to prevent a buildup of debt.
One option being considered by the cabinet is to change the deficit ceiling to an average of 3% over five years, enabling the budget gap to exceed 3% in any given year during that period.
"That's one line of thinking and the president is holding discussions about that," Indrawati told Bloomberg News on the sidelines of a World Bank event. "But for now we will continue to operate under the current legislation."
A change in the fiscal rule would be one of the most significant economic policy reforms in Indonesia in almost two decades. The deficit cap acts as a curb on growth, forcing the government to cut back on spending if revenue slumps and the 3% ceiling is in danger of being breached.
This year's growth slowdown and reduced tax collection have already pushed the government to widen its deficit target to 2.2% of GDP from an initial projection of 1.84%. Officials have said they are prepared to widen the fiscal gap next year too.