JAKARTA (REUTERS/AFP) - Indonesian President Joko Widodo unveiled on Friday a proposed 2016 budget built on the assumptions that the country's slack economic growth will accelerate next year and the rupiah will be stronger.
He lowered economic expectations with a more modest initial growth forecast for next year, as he unveiled a budget that also highlighted his government’s focus on improving infrastructure.
The proposed budget assumes 2016 economic growth at 5.5 per cent. That is below 5.7 per cent assumed in the revised 2015 budget, but still optimistic compared to the latest government outlook for this year of 5 per cent to 5.2 per cent. It is more modest than the government’s initial estimate for this year of 5.7 per cent, which economists say is now far out of reach.
Indonesia grew about 4.7 per cent in each of the first two quarters, and many economists say growth this year will be below 5 per cent.
"Infrastructure construction will push investment growth and help national consumption," Mr Joko said, adding that exports should improve due a better global economic outlook.
Mr Joko also pledged to increase infrastructure spending to 313.5 trillion rupiah, from 290.3 trillion rupiah this year, as his government seeks to better connect the sprawling archipelago.
In his first state of the nation address, shortly before he delivered the budget, he listed key infrastructure projects that the government is building, including roads on the main island of Java and new railways in various parts of the country.
Poor infrastructure, from potholed roads to ageing ports, is a major complaint of businesses. However, efforts to boost infrastructure have so far made little progress, with the government only succeeding in spending a fraction of its budget and projects stalled or moving forward only slowly.
The budget proposal also sees an average rupiah exchange rate at 13,400 per dollar, much weaker than the 12,500 assumption made for 2015. The rupiah on Friday was trading at 13,777 against the greenback.
Mr Joko presented to Parliament a proposal for 2016 budget with a fiscal deficit at 2.1 per cent of gross domestic product (GDP), slightly smaller than the 2.23 per cent forecast for this year.
The budget proposal calls for total central government spending of 2,121.3 trillion rupiah (S$215 billion) next year, Mr Joko said, 7 per cent up from what was approved in the revised 2015 budget.
State revenue was proposed at 1,848.1 trillion rupiah, up 5 per cent from the ambitious target set in this year’s revised budget.
The projections would make the 2016 budget deficit to come at 273.2 trillion rupiah.
“The deficit will be financed by domestic and international loans,” Mr Joko said, adding that 272 trillion rupiah will be from local financing.
Mr Joko took office in October last year promising to boost South-east Asia’s biggest economy, but he has faced criticism for failing to revive growth, which fell to a six-year low of 4.7 per cent in the second quarter.
Analysts say the President has made insufficient progress in pushing his economic agenda due to red tape and a lack of coordination between ministries, while unfavourable global conditions have also put pressure on the economy.
“The government assumptions of 5.5 per cent growth next year still look a bit too positive for us,” Mr Wellian Wiranto, an economist from Singapore-based OCBC Bank, told AFP.
“But compared to 5.7 per cent that they had in mind for this year, that’s a bit more realistic.”
Mr Wiranto said his forecast for Indonesia’s growth next year was 5.2 per cent.
The following are highlights of his speech, which includes assumptions for economic indicators next year.
– The proposed 2016 plan assumes a budget deficit of 273.2 trillion or 2.1 per cent of gross domestic product (GDP), slightly smaller than the 2.23 per cent deficit seen for this year.
– Most financing will come be from domestic source, at 272 trillion rupiah.
– Calls for spending of 2,121.3 trillion rupiah in 2016, up 7 per cent from the revised 2015 budget.
– Govt to focus spending on infrastructure, food and energy sufficiency
– Infrastructure budget proposed to increase by 8 per cent to 313.5 trillion rupiah, from 290.3 trillion.
– 20 per cent of spending will go to education, 5 per cent to healthcare
– Reinforcing fiscal decentralisation, Widodo lifts funds for local governments to 782.2 trillion rupiah, up 17.7 pct from this year
– Calls for pre-tender of infrastructure projects earlier, so budget will kick in starting January 2016
– Target of 1,848.1 trillion rupiah in 2016, up 5 pct from the revised 2015 budget.
– "More realistic” tax collection target at 1,565.8 trillion rupiah, up 5 per cent from this year.
– Tax ratio set at 13.25 per cent of gross domestic product
– Tax policy aimed at economic stability, maintaining purchasing power, and adding value to industry.