Winarno Jain, Jakarta – In the 10 years of Joko "Jokowi" Widodo's presidency (2014-2024) Indonesian economic growth has been sustainable, resilient and relatively high. It has managed to navigate safely in the midst of global economic headwinds and turbulence.

The gross domestic product (GDP) stood at US$1.42 trillion in 2023, $559 billion larger than in 2015. Its GDP per capita rose nearly 50 percent to $4,940 in 2023.

Fiscal policy was one of the reasons behind this relatively high and stable growth. During Jokowi's presidency, his fiscal policy has been characterized as prudent and disciplined. It has contributed to the macroeconomic stability, and has been flexible enough to act as a buffer and a counter cyclical policy during economic downturns. Indonesia's fiscal policy appears to have been effective in cushioning short-term shocks.

The post-C0VID-19 global economic landscape was full of uncertainties, created by geopolitical tension and aggressive monetary tightening in advanced countries. Given the prospect of low global growth, moderating commodity prices and a higher cost of borrowing, the Jokowi administration took a conservative approach to fiscal policy by narrowing the budget deficits to ease financing pressures, despite a significant revenue windfall in 2022 amid skyrocketing commodity prices.

But the fiscal budget has been plagued with low revenue collection, as the tax ratio to GDP has been persistently low during Jokowi's presidency, despite several tax reforms that have been implemented. In 2023 the Indonesian tax ratio was 9.6 percent, compared with Malaysia (12.2 percent), Thailand (16.7 percent) and Vietnam (11.6 percent).

The relatively low tax ratio has constrained the government's pursuit of a more expansionary fiscal policy to grow the economy above 5 percent annually. As result, government expenditure has hovered around 15 percent of GDP since 2015, which is lower than its peers in the Group of 20 such as India (28 percent), Brazil (48 percent), Turkey (28 percent) and Malaysia (23 percent).

Jokowi's administration spent Rp 3.15 quadrillion ($210 billion) on infrastructure between 2015 and 2023, an average of 2.2 percent of GDP. This compared with India (3.3 percent), China (6.7 percent) and Vietnam (6 percent).

However, according to a recent World Bank report, Indonesia's logistics performance ranking fell to 61st in 2023 down from 45th in 2018 out of 139 countries. The fall in ranking was due to its score in the logistics component (transportation cost, inventory cost, administration cost, bribery, illegal payments) despite an improvement in its physical infrastructure.

Spending on social aid has been one of the important features in Jokowi's fiscal policy. It was designed to stabilize the economy, prevent recession and reduce poverty and to establish a social safety net for the vulnerable population. The Jokowi government spent Rp 3.31 quadrillion between 2015 and 2023 on social aid, 2.2 percent GDP. This was well below Vietnam (7.6 percent), Thailand (6.4 percent), Malaysia (5.5 percent) and the Philippines (3.8 percent).

This highlights the constrained fiscal space for social protection in Indonesia and the pressing need for strategic and efficient use of available resources, especially the effectiveness of this program to alleviate poverty.

The number of people living in poverty declined from 27.7 million in 2014 to 25.2 million in March 2024, which was not commensurate with the Rp 3.3 quadrillion spent on social assistance programs by the government between 2015 and 2023. In addition, about 120 million people, 40 percent of the total population, still live near the poverty line, meaning that they are prone to falling into poverty at the slightest decline in economic conditions.

The Jokowi government spent Rp 4 quadrillion on education between 2015 and 2023. But this has not translated into improvement of the quality of education. The Indonesian student performance in the Organisation for Economic Co-operation and Development's (OECD) Programs for International Student Assessment (PISA) has declined since 2015.

There are still large regional disparities in the quality of education delivered. And spending on tertiary education is regressive.

Government debt has been kept at a manageable level, taking into account risk and ability to pay. The procurement of debt has been managed strategically to moderate risk, by optimizing alternative and domestically sourced financing. A wide investor base with different types of instruments has helped to spread risk and provide flexibility.

Domestically debt management has also improved through the expansion of local currency issuance including conventional and sharia instruments. The average tenor of the debt is now eight years, the dominance of local currency debt has reduced exchange rate risk, and the declining foreign-owned debt has reduced capital outflow impact on the balance of payments.

But risk perception of investors has kept Indonesia's 10-year bond yields higher than its peers, hovering at 7 percent, compared with Malaysia and Thailand at 3 percent.

According to CNBC news, the government spends Rp 500 trillion annually on maturing bonds and the installment of debt principals, including Rp 82 trillion on foreign debt. In 2023, for example, debt interest costs and debt repayments totaled Rp 937 trillion, about 46 percent of total tax revenues and 30 percent of total government spending.

Source: https://asianews.network/president-jokowis-presidency-leaves-behind-very-narrow-fiscal-space