Indonesia president proposes US$206b budget for 2023

INDONESIA’S President Joko Widodo on Tuesday (Aug 16) proposed to Parliament a smaller budget for 2023 than for this year, pledging to consolidate fiscal positions after racking up large deficits during the pandemic.

Jokowi, as the president is popularly known, proposed a budget of 3,041.7 trillion rupiah (US$206 billion) for next year, with a deficit of 2.85 per cent of gross domestic product (GDP), the smallest budget gap since 2019.

Next year will be the first year that South-east Asia’s largest economy reinstates a legally mandated fiscal deficit ceiling of 3 per cent of GDP, after it was waived for 3 years to allow the government to respond to the Covid-19 pandemic.

The size of the proposed budget was about 2 per cent smaller than spending plans for 2022. Jokowi predicted an almost 8 per cent increase in total revenue next year to 2,443.6 trillion rupiah.

“The year 2023 provides a momentum to carry out quality fiscal consolidation so that fiscal management maintains a balance between countercyclical capabilities and efforts to control financing risks,” Jokowi told lawmakers in a speech broadcast nationally.

He was speaking a day ahead of Indonesia marking 77 years of independence from the Dutch on Aug 17. In an earlier state-of-the-nation speech, he hailed the country’s strong economic fundamentals amid global volatility.

The president said the economy faces multiple risks from the war in Ukraine, global monetary tightening and supply chain disruption, but added those “should not make us pessimistic”.

The budget will be an engine of growth, the president said, setting an economic growth target of 5.3 per cent next year and vowing to manage inflation at 3.3 per cent.

Indonesia’s inflation was at a 7-year high of 4.94 per cent in July. Jokowi’s economics minister has said this year’s 5.2 per cent growth target would likely be achieved after an acceleration in second-quarter growth.

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Jokowi’s budget assumptions also include the rupiah exchange rate averaging at 14,750 a US dollar, near where it’s currently trading, and the benchmark 10-year bond yield at around 7.85 per cent, above current levels.

The president did not elaborate what policy decision he would take regarding energy subsidies in 2023, even as his government’s spending on fuel and power subsidies has tripled this year. His ministers have said the government is currently reviewing a potential fuel price hike as global energy prices rise. REUTERS