Indonesia considering raising fiscal deficit above 3pc to fight virus

This photo taken March 16, 2020 show workers loading crates full of eggs at a poultry farm on the outskirts of Blang Bintang, Aceh province. — AFP pic
This photo taken March 16, 2020 show workers loading crates full of eggs at a poultry farm on the outskirts of Blang Bintang, Aceh province. — AFP pic

JAKARTA, March 24 — Indonesia is discussing raising the limit on the country’s fiscal deficit as a proportion of GDP above an existing three per cent legal limit to aid the fight against coronavirus and to shield the economy, its deputy finance minister said today.

The Finance Ministry has widened its deficit estimate to around 2.5 per cent of gross domestic product (GDP) this year, up from 1.8 per cent initially planned, but deputy minister Suahasil Nazara said it could go further.

Parliament’s budget committee recommended yesterday the government raise the cap to five per cent to allow more budget manoeuvring and issue a regulation in lieu of a law to allow it to surpass the three per cent limit stipulated in a 2003 law.

In a conference call today, Nazara said the government was now in talks with parliament on the issue and “I can tell you that a higher than three per cent deficit is an option on the table.”

Indonesia is raising health spending to 1.5 per cent of GDP from 0.8 per cent by reallocating other spending, but he said the government is gearing up for even more spending as the outbreak continue.

Nazara said cash transfers to around 15 million poor families will be increased to support their purchasing power as the economy suffers disruptions due to the outbreak.

Indonesia has already launched two stimulus package that include tax breaks to certain industries and easing import rules.

Meanwhile, President Joko Widodo said in a speech today he had asked provincial governors to slash non-priority spending and noted “the current fiscal condition is not easy.”

“We need to refocus and reallocate the budget to tackle issues that are caused by Covid-19,” he said.

Finance Minister Sri Mulyani Indrawati has identified 62.3 trillion rupiah (RM16.8 billion) of spending in the 2020 budget that could be redirected to the Covid-19 response.

Meanwhile, the budget is facing pressures on the revenue side as the government saw revenues from corporate taxes in drop by nearly 20 per cent in January and February from year ago levels.

Widodo said the government had prepared various scenarios for the impact on government’s finances and under its “medium impact scenario”, if the outbreak lasted until September, labourers’ income could fall by as much as 25 per cent and farmers’ income by 34 per cent in some provinces.

Bank Indonesia has revised down its economic growth outlook for this year to 4.2 per cent-4.6 per cent from 5.0 per cent-5.4 per cent previously. — Reuters

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