Indonesia's fiscal outlook benign but authorities hawkish: Citi

In Citi Research's Indonesia Economics View report dated Oct 21, economist Helmi Arman shared his takeaways from the Jakarta Macro Meetings on Oct 18.

The fiscal deficit stood at 1.35 per cent of gross domestic product (GDP) as of end-September, down from 2 per cent in the year-ago period. Indonesia's Ministry of Finance has lowered its projection for the FY 2018 fiscal deficit to 1.8 per cent to 2 per cent of gross domestic product, down from 2.1 per cent previously. Said Citi: "We think this forecast looks credible, given the still-robust growth of tax revenues up to Sep (18% YoY) as result of fiscal reforms. MoF still sees continued room for tax intensification next year."

However, policymakers seem to envision fuel prices being raised across the board after the April 2019 elections, though not to their full market price -- in contrast to Citi's base case of price increases for RON 88 and 90 only, but to their full prices. Under the policymakers' scenario, inflation is expected to rise towards the low 4 per cent level in 2019.