Tuesday, September 26, 2023

Blow to the Budget: Gov't Expects Deficit as Covid-19 Stimulus Erodes Revenue

Triyan Pangastuti
April 6, 2020 | 7:26 pm
Jakartans heed the government's instruction to wear masks to prevent the spread of coronavirus as they walk in the rain in Central Jakarta on Monday. (Antara Photo/Muhammad Adimaja)
Jakartans heed the government's instruction to wear masks to prevent the spread of coronavirus as they walk in the rain in Central Jakarta on Monday. (Antara Photo/Muhammad Adimaja)

Jakarta. The government is now expecting a $52 billion blow to its budget this year – the highest ever on record – as the Covid-19 pandemic wreaks havoc on Southeast Asia's largest economy, eroding the state revenue as the government is forced to issue a massive stimulus package to keep the economy afloat. 

Finance Minister Sri Mulyani Indrawati told the House of Representatives the ministry now projected the country's revenue would drop to Rp 1,761 trillion ($107 billion) this year, 10 percent lower than the figure in the 2020 state budget.

Taxation revenue is likely to suffer this year as many businesses are forced to stop operations and lay off employees. 

Meanwhile, the government has been forced to add hundreds of trillions of rupiah in economic stimulus spending this year, boosting the state expenditure to Rp 2,613 trillion from Rp 2,540 trillion in the original state budget, Sri Mulyani said.


As a result, the 2020 state budget deficit is expected to swell to Rp 853 trillion, or 5.07 percent of the country's gross domestic product, the minister said. 

"We're likely to experience the biggest impact from Covid-19 in the second quarter, which may continue until the third quarter before [the economy] recovers in the fourth," Sri Mulyani told the House in a teleconference on Monday.    

The government now expects the Indonesian economy to slow down to 2.3 percent this year, from an initial target of 5 percent.

The tourism and hospitality industry, the country's largest foreign exchange revenue generator, has already taken a hit with thousands of hotels suspending operations due to lack of visitors.

Indonesia had 18 million foreign visitors last year. Now it has closed its doors to visitors from China – its largest tourism market – and several other countries due to the coronavirus pandemic. 

Lower demand resulting from many more Indonesians staying at home during the pandemic is also eroding revenues of some businesses like construction, transportation, financial services, mining and automotive, according to a report from the Coordinating Ministry for Economic Affairs.

The tax revenue would suffer, Sri Mulyani said, as the government now expects smaller tax collection from these businesses.

The government is also set to cut or suspend tax and duty payments in 19 manufacturing subsectors.   

"Customs and excise revenue is projected to fall by 2.2 percent if we factor in the stimulus of exempting import duties," Sri Mulyani said. 

The recent decline in global oil prices would also reduce the country's royalty revenues from oil by 27 percent. 

This is when the government has committed Rp 405 trillion in economic stimulus to increase health spending, social assistance and business incentives.

The minister said the government is mulling over a plan to ditch the civil servants' annual bonus and holiday bonus (THR) to rein in spending. 

"The president asked us to make a study for [canceling] the payment of THR and [civil servants'] 13th salary," Sri Mulyani said.

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