Indonesia's virus support may not be enough for growth: Nomura report

2019-10-24T102205Z_1_LYNXMPEF9N0SG_RTROPTP_4_WEF-VIETNAM.JPG
Indonesian Finance Minister Sri Mulyani Indrawati at the World Economic Forum on Asean in Hanoi, Vietnam in 2018. Dr Mulyani recently said that the Covid-19 outbreak could cut her country's full-year growth.
FEBRUARY 27, 2020 - 10:55 AM

A FISCAL shot in the arm, which Indonesia is hoping would boost the economy in the face of the global Covid-19 epidemic, remains unlikely to move the needle on growth, a report has said.

That’s the view of two analysts from Nomura, who wrote that “the package does not represent new spending but only reallocations from other items already in the Budget”.

With the stimulus measures making up 0.06 per cent of the gross domestic product (GDP), the analysts called it small against Finance Minister Sri Mulyani Indrawati’s estimate on Feb 19 that the deadly viral respiratory disease could take 0.6 percentage point off the GDP.

Two-fifths of the help package will go towards the hard-hit aviation and tourism sectors, in the form of tax breaks of some hotels and restaurants, as well as discounted flight tickets. These measures could boost domestic travel demand, the Nomura analysts said.

But they also noted that part of the tourism tax breaks “will be funded by already-budgeted grants from the central government”, while other aid will come from state-owned enterprises, such as Pertamina’s discounts on jet fuel.

“We doubt that these ‘stimulus’ measures will have a significant impact on the growth outlook, not just because of its small size but also because we have still not detected a clear indication that the fiscal stance is shifting more meaningfully towards growth,” the analysts concluded, suggesting that a wider budget deficit may be needed to deliver new spending support.