Indonesia President Jokowi proposes $254b budget for 2021, deficit of 5.5% of GDP

President Joko Widodo pledged to continue efforts to support the economy amid uncertainties. PHOTO: AFP

JAKARTA (REUTERS, BLOOMBERG) - Indonesian President Joko Widodo on Friday (Aug 14) proposed to Parliament a 2,747.5 trillion rupiah (S$254 billion) budget for 2021 and pledged to continue efforts to support the economy amid uncertainties surrounding the coronavirus pandemic.

The budget proposal, which represents only a 0.3 per cent increase compared with this year's spending plans, assumed growth in South-east Asia's largest economy will rebound to 4.5 to 5.5 per cent in 2021, following an official prediction of near-flat growth this year.

The proposal assumes a budget deficit of 5.5 per cent of gross domestic product, smaller than the 6.34 per cent expected in 2020. Revenue is seen rising 4.5 per cent to 1,776.4 trillion rupiah.

"The 2021 state budget Bill is designed to accelerate economic recovery nationwide amid the Covid-19 pandemic," the President said in his annual budget speech to Parliament, ahead of the country's independence celebrations on Aug 17.

Southeast Asia's largest economy is experiencing its worst crisis in more than two decades as restrictions on movement to fight the pandemic and a plunge in global demand have wreaked havoc on households and business.

With government revenue falling, Jokowi, as the president is known, has turned to the central bank to help share the burden, and said he intends to do so again next year.

"The government is committed to delivering positive growth in 2021 and beyond by fiscal stimulus, and such counter-cyclical fiscal strategy is indeed appropriate," said Enrico Tanuwidjaja, a Jakarta-based economist for United Overseas Bank Ltd.

"The speed of implementation and disbursement on the ground of the real economy is key to achieve the growth target, and flexibility given to the fiscal deficit cap until 2022 will lend much-needed armour."

The Jakarta Composite Index gained 0.2 per cent Friday to 5,247.69. The rupiah extended its losses for a seventh straight day, weakening 0.1 per cent to 14,795 to the dollar.

"As Indonesia will finance its 2021 deficit with central bank cooperation, it will undermine the rupiah on concerns over more debt monetisation," said Gao Qi, Asia FX strategist at Scotiabank in Singapore. "The rupiah is likely to test 15,000 in the next few weeks."

Indonesia's economy shrank 5.32 per cent in the second quarter compared to a year earlier, its first contraction in more than two decades. The country is still grappling with a surge in infections since the partial lockdown was eased at the end of May, with the second-highest virus caseload and highest death toll in East Asia.

The government will focus spending to accelerate the economy's rebound from the pandemic, Jokowi said, and will push for structural reforms to increase productivity and competitiveness.

Other key details of the budget:

-- Inflation seen at 3 per cent next year

-- Infrastructure spending of 414 trillion rupiah

-- Health-care spending of 169.7 trillion rupiah - up from 132.2 trillion - including to facilitate vaccine procurement

-- 356.5 trillion rupiah set aside for the government's economic recovery program

-- Taxation revenue target set at 1,481.9 trillion rupiah

-- 419.3 trillion rupiah for various social safety net programs and direct cash transfers to the poor

-- 549.5 trillion rupiah earmarked for education

-- The government expects the rupiah to average about 14,600 to the dollar next year

-- Disbursement of 796.3 trillion rupiah for funding of regions and villages.

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