Indonesia aims to cut 2022 fiscal deficit to below 5%

[JAKARTA] Indonesia plans to reduce its budget deficit next year to less than 5 per cent of gross domestic product and under 3 per cent in 2023 as part of post-crisis fiscal consolidation measures, a finance ministry official said on Thursday.

South-east Asia's largest economy relaxed its fiscal rules for three years from 2020 to allow for bigger government spending amid the coronavirus pandemic, but has vowed to bring fiscal deficits back to under a legal limit of 3 per cent of GDP starting in 2023.

Last year's deficit of 6.1 per cent was the biggest in decades and the government expects a 5.7 per cent gap this year.

Febrio Kacaribu, who heads the ministry's fiscal policy office, said the government would design the 2022 budget with a shortfall within 4.51 per cent to 4.85 per cent and the 2023 budget with a gap of 2.71 per cent to 2.97 per cent.

"We want to go back to a fiscal discipline that was already great. That's why we are committed that by 2023, our budget deficit must be below 3 per cent," Mr Febrio told a virtual seminar.

Economists have warned Indonesian policymakers that withdrawing pandemic-era stimulus too soon could disrupt an economic recovery, but Finance Minister Sri Mulyani Indrawati has stuck to her tapering plans, which she has said was important to maintain policy credibility.

Indonesia's economy contracted for the first time in over two decades last year, shrinking by 2.07 per cent, and the government expects a rebound to 4.5 per cent to 5.3 per cent growth this year.

"We can ensure that in 2023, our economy will be very resilient ... very strong," Mr Febrio said, citing structural reforms the government has conducted to attract investment and create jobs.

Total government spending as a percentage of GDP would decline gradually, from 2020's 16.5 per cent and just under 16 per cent this year to within a range of 12.9 per cent to 13.9 per cent in 2023, while at the same time, government revenues are projected to increase, Mr Febrio's presentation materials showed.

Last year, Indonesia introduced a contentious law to ease investment rules in an attempt to entice bigger foreign investment.

REUTERS