Indonesia needs to 'get fiscal'

INDONESIA has one of the strongest structural stories in Asean, and we think 2015 likely marked the floor to growth. Our base case for this year is for a mild growth recovery to 5 per cent from 4.8 per cent in 2015. Given the tepid external environment - Morgan Stanley's global economics team expects global GDP growth to decelerate from 3.1 per cent in 2015 to 3 per cent in 2016 - we think fiscal policy is what's needed to lend growth alpha in Indonesia in this cycle.

However, the year-to-date fiscal revenue shortfall and its implications for government expenditure, as well as mixed trends in high-frequency macro indicators, have led to concerns about whether Indonesia's growth recovery is in fact happening.

Government revenue collection from January to April was down 9.9 per cent from the year before - a little less bad than the 12.8 per cent drop in the first quarter. A few things drove the government revenue decline in January-April, such as lower excise taxes owing to the front-loading of tax payments last year and a decline in non-tax revenue for natural resources as prices for commodities such as oil stayed low.