Indonesia expects drastic cut to budget deficit on tax windfall

Jakarta

INDONESIA'S finance chief further cut estimates for the budget deficit this year and next, as a fresh round of tax hikes is set to bolster the government's earnings.

The shortfall should come in at 4.1 per cent of gross domestic product in 2022, much lower than the 4.85 per cent it set in the national budget, Finance Minister Sri Mulyani Indrawati said in an interview with Bloomberg Television. That's a steep decline from this year, when the deficit is seen at the lower end of the 5.1-5.4 per cent range due to tempered spending and an 18 per cent jump in state revenues as at October, she said.

The government still has "a very good chance" of reaching its target of bringing the budget deficit back under the legal limit of 3 per cent of GDP by 2023, said Indrawati.

Indonesia joins other nations that are tightening their belts heading into 2022, rolling back pandemic-era stimulus that sustained their economies but ran up government debts. The country's growth recovery is set to take hold this quarter as Covid-19 cases steadily decline and consumers start spending, even as the omicron variant risks inciting fresh lockdowns.

A new law that raises value-added taxes and offers tax amnesty should yield additional revenue of about 1 per cent of GDP next year, the finance minister said. The government also plans to use its unspent cash and tap Bank Indonesia's bond-buying programme to reduce its financing needs.

Indrawati is keeping an eye on the monetary tightening by advanced economies, which could trigger foreign outflows from riskier assets. As Indonesia kicks off its G20 presidency, she called for a coordinated global exit policy to spare emerging markets from any disruptive effect.

Bank Indonesia Governor Perry Warjiyo also urged developed nations to focus their policies on "fundamental economic problems" such as demand-driven inflation, instead of temporary price pressures due to supply chain disruptions and energy shortages.

Indonesia has been spared from the inflation pressures plaguing US and European policymakers, Indrawati said. Ample food stocks and fuel subsidies have kept a lid on consumer prices, which have stayed below the central bank's 2-4 per cent range. That gives the monetary authority room to manoeuvre in case of any volatility from the Federal Reserve's impending taper.

"I think they continue recalibrating their policy," she said, referring to Bank Indonesia. "Bear in mind that on the domestic side at this very moment inflation is still very low, at the same time our external balance is also relatively strong." BLOOMBERG