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Indonesia banks on stronger GDP growth in 2018 budget proposal

[JAKARTA] Indonesian President Joko Widodo on Wednesday proposed a state budget for 2018 that assumes an acceleration in growth to fund a series of measures aimed at addressing inequality in South-east Asia's biggest economy.

In an address to parliament, Mr Widodo said the main focus of his fiscal policy next year was fairer distribution of growth, including targetting the building of infrastructure and developing border areas.

The president said the budget - which sees a deficit of 2.19 per cent of gross domestic product (GDP) - was "credible and sustainable", though some economists described it as conservative. The fiscal deficit is below the 2.92 per cent set for 2017.

Mr Widodo said the economy is likely to expand 5.4 per cent in 2018, faster than the 5 per cent average growth rate between 2014-2016 and his target of 5.2 per cent this year.

Nonetheless, the projected growth rate is still well below the 7 per cent level he had promised during his campaigning for president in 2014.

He proposed total expenditure of 2,204.4 trillion rupiah (S$223.77 billion) next year, a 5 per cent rise from the level the government expects to spend in 2017, including a 20.7 trillion rupiah increase in infrastructure spending.

But the allocation for defence and domestic security spending in 2018 was smaller than this year.

The spending targets were based on the Widodo administration collecting revenue of 1,878.4 trillion in 2018, or 8 per cent higher than this year's target.

The government plans to impose excise taxes on plastic bags and review other tax policies next year to boost revenue collection, according to its budget proposal.

It also hopes an international agreement to exchange tax-related information will improve compliance by taxpayers.

Oil and gas-related revenue is projected to increase next year as the government assumes higher production and maintains its assumption for global crude prices at US$48 a barrel.

Gundy Cahyadi, DBS Bank economist in Singapore, said the government's growth target was in line with its outlook for next year, but he saw "some downside risks". He cited indicators of weak manufacturing growth as the main concern.

Misbakhun, a member of parliament's financial commission, said that some major events due to take place in Indonesia in 2018, including the Asian Games, the IMF-World Bank's annual meetings and regional elections, should help boost growth.

The 2018 budget proposal needs parliamentary approval. Mr Widodo is likely to get it after legislators make some small amendments in the plan.