Indonesia steps up fiscal spending to keep economy from contracting

[JAKARTA] Indonesia's 2020 budget deficit is expected to widen further as the government steps up fiscal spending to keep the virus-hit economy from shrinking, its finance minister said on Wednesday.

Sri Mulyani Indrawati expected the 2020 budget deficit to swell to 6.34 per cent of gross domestic product (GDP), compared with an earlier estimate of 6.27 per cent, which was already the widest in more than a decade.

Total spending for the so-called National Economic Recovery Programme in 2020 is expected to rise to 677.2 trillion rupiah (S$66.99 billion), Ms Indrawati said, up from the 641.17 trillion rupiah she had announced.

The changes will boost the size of the 2020 budget to 2,738.4 trillion rupiah, she said in an online news conference.

"With the stimulus that we have announced, we hope to be able to keep economic growth to above 0 per cent, meaning 1 per cent or close to 2.3 per cent," the minister said.

She said the government was maintaining its 2020 GDP forecast of between -0.4 per cent to 2.3 per cent. The economy grew 5.02 per cent in 2019.

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The increase in spending represented an extension of some welfare programmes and bigger budget allocations for existing measures, such as subsidies for interest payments for small firms, she said. She did not announce any new measures.

The government and the central bank are finalising a fiscal scheme that provides liquidity support for commercial banks, in which Bank Indonesia (BI) may buy more government bonds directly, BI Governor Perry Warjiyo told the same conference.

Banks are supposed to maximise their holdings of government bonds by using them in repurchase transactions with the central bank to boost liquidity, Mr Warjiyo said.

The new budget has been discussed within the cabinet and with parliament's budgetary committee, Ms Indrawati said. Under the government's emergency measures for Covid-19, President Joko Widodo is allowed to revise his budget without parliamentary approval.

REUTERS