Indonesia ramps up stimulus spending to revive sluggish demand

Jakarta

INDONESIA is accelerating disbursement of some US$50 billion in fiscal stimulus to revive consumer spending and prevent South-east Asia's largest economy from sliding into a recession.

The government will pay 28.8 trillion rupiah (S$2.7 billion) to civil servants and state pensioners as a 13th month salary starting this week, Finance Minister Sri Mulyani Indrawati said.

The bonus, along with 37.7 trillion rupiah as cash incentives to almost 16 million formal workers announced last week, is expected to boost purchasing power and stimulate the economy, she said.

"The incentives will complement the stimulus package that has already been rolled out," Ms Indrawati said at a briefing in Jakarta on Monday.

"The trend of budget absorption has been showing an increase along with the extension and expansion of some social assistance plans, programme redesign and simplification of the bureaucracy."

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Indonesia's economy declined 5.32 per cent in the second quarter, its first contraction in more than two decades, after strict mobility restrictions to contain the coronarvirus outbreak decimated small and big businesses alike.

The government plans to spend as much as 1,476 trillion rupiah in the six months through December to boost the economy, Ms Indrawati said last week.

The government has spent 151.2 trillion rupiah of its 695.2 trillion virus stimulus package as of the first week of August, Ms Indrawati said.

Increased spending may help reverse the 5.51 per cent decline in private consumption and 6.9 per cent drop in government expenditure in Q2.

While the prospects for the economy remain grim, Fitch Ratings affirmed Indonesia's sovereign credit rating at BBB with a stable outlook.

The company cited favourable medium-term growth outlook and low government debt-to-GDP ratio against high dependence on external financing among reasons for retaining the rating.

Fitch expects Indonesia's fiscal deficit to narrow to 5 per cent in 2021 and 3.5 per cent in 2022, as most of the pandemic-related expenditure are seen as temporary.

The rating company forecasts the economy to contract 2 per cent this year, before rebounding to 6.6 per cent growth in 2021 and 5.5 per cent in 2022.

While Indonesia faced a high fiscal deficit currently, the government is committed to return to below 3 per cent, Ms Indrawati said, adding that "the extraordinary burden-sharing steps with Bank Indonesia is in line with fair and prudent international practices". BLOOMBERG