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Indonesia's 2016 budget deficit narrows after huge spending cuts

[JAKARTA] Indonesia's budget deficit narrowed in 2016, the finance minister said on Tuesday, as major spending cuts helped offset less-than-expected revenue from a tax amnesty programme.

The budget deficit for Southeast Asia's largest economy was estimated at 2.46 per cent of gross domestic product, down from 2.58 per cent in 2015. A final audited estimate will be released later this year.

Finance Minister Sri Mulyani Indrawati, who was appointed from the World Bank in July, made it her top priority to fix a budget she initially considered not credible. Among her first measures as minister was cutting spending by 133.8 trillion rupiah (S$14.3 billion). "The budget deficit was managed at 2.46 per cent because we were able to cut and delay some spending,"Ms Indrawati said.

She said the government did not manage to meet its 2016 revenue target set in June. Lower returns from the amnesty programme, income tax and other tax revenue left a 234 trillion rupiah gap.

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Total revenue in 2016 amounted to 1,551.8 trillion rupiah. That included a less-than-expected 107 trillion rupiah from the government's flagship tax amnesty programme, which has drawn more than 600,000 participants.

Less-than-expected income meant the government had to put a brake on spending as Indonesian laws prevent a year's fiscal deficit from breaching 3 per cent of GDP. "The shortfall was bigger than expected and that is a reflection of the challenges in 2017," Indrawati said. "The pulse of the economy is still weak." Indrawati's predecessor Bambang Brodjonegoro was largely criticised for setting unrealistic tax targets, which led to a budget deficit crisis near the end of 2015.

Ms Indrawati said total government expenditure last year was 1,859.5 trillion rupiah, or 223.4 trillion rupiah below its earlier plan.

The government expected 2016 growth at 5 per cent, slightly better than the previous year's 4.8 per cent - which was the weakest since 2009. It forecasts this year's growth at 5.1 per cent.