Indonesia posts rare January budget gap as spending jumps 26%
The finance minister has said growth should accelerate further to 5.5% to 6% this quarter
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[JAKARTA] Indonesia posted a rare budget shortfall in January after the government followed through on its pledge to accelerate spending to support economic growth.
The fiscal deficit stood at 54.6 trillion rupiah (S$4.1 billion), equivalent to 0.21 per cent of gross domestic product, Finance Minister Purbaya Yudhi Sadewa said in a briefing on Monday (Feb 23).
Post-pandemic, the government has typically posted a surplus in the first month of the year, when tax revenues are strong and projects are just getting started.
Stocks, the rupiah and benchmark 10-year government bonds held earlier gains as US President Donald Trump’s new tariff threats hurt sentiment towards the greenback, benefiting Asian assets.
State spending jumped 25.7 per cent year on year, far outpacing the 9.5 per cent increase in state revenue.
Ministerial and agencies recorded a 129 per cent surge in their expenditure as they more than doubled funding for President Prabowo Subianto’s free meals programme and other social aid. Capital spending also increased nearly seven-fold as the government invested in irrigation, connectivity and food security initiatives.
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The spending spree should bode well for South-east Asia’s largest economy, which beat expectations and expanded 5.39 per cent last quarter due to government stimulus. Purbaya has said growth should accelerate further to 5.5 to 6 per cent this quarter.
“These government expenditures overall will contribute positively to the economy in the first quarter of this year,” says Deputy Finance Minister Suahasil Nazara.
The market will be closely watching Indonesia’s fiscal path this year as Purbaya has pledged to keep the deficit within its legal cap of 3 per cent of GDP, despite the faster spending.
Moody’s Ratings earlier lowered the outlook on Indonesia’s credit rating to negative, citing risks to fiscal stability. A team from Fitch Ratings is visiting and meeting policymakers for assessment this week, said Febrio Kacaribu, the finance ministry’s director-general of economic and fiscal policy. BLOOMBERG
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