The House of Representatives is mulling adding an additional two deputy speaker posts during deliberations on revisions of the Law on Legislative Bodies, or MD3 Law. (Antara Photo/Sigid Kurniawan)

Indonesia Approves 2017 State Budget with 2.41% Deficit

BY : HIDAYAT SETIAJI & GAYATRI SUROYO

OCTOBER 26, 2016

Jakarta. Indonesia's parliament on Wednesday (26/10) approved the government's 2017 budget, described by Finance Minister Sri Mulyani Indrawati as a "balanced budget".

The budget, at a deficit of 2.41 percent of gross domestic product, is bigger than the initial 2016 budget of 2.15 percent but smaller than the expected 2.7 percent deficit this year.

Revenue and spending targets were both set below the plan for this year, at Rp 1,750.3 trillion($135 billion) and Rp 2,080.5 trillion rupiah, respectively.

Sri Mulyani, a former World Bank managing director, had said previously that 2017's figures were set taking into account the large shortfall expected from tax revenue this year.

"With the support of the parliament, finally, construction of a more balanced and credible 2017 state budget can be completed, which hopefully can be an important instrument to boost a better national growth in 2017," Sri Mulyani told parliament.

Sri Mulyani's predecessor Bambang Brodjonegoro was largely criticized for setting unrealistic tax targets which led to a budget deficit crisis near the end of the fiscal year. Cutting spending and adjusting the revenue outlook were among the first things Sri Mulyani did when she took office in the middle of this year to make the budget "credible".

The World Bank in its Indonesia Economic Quarterly report launched on Tuesday called the budget "more realistic". Its economic growth outlook for Indonesia in 2017 of 5.3 percent is more optimistic than the government's 5.1 percent, but its revenue collection outlook for the year is $3 billion less than the government's target.

The bank also projected a larger fiscal deficit next year, at 2.8 percent, "assuming the government's policy intent to maintain the momentum of public investment especially for priority spending such as infrastructure and social spending within the fiscal rule." The bank was referring to Indonesia's law which limits the fiscal deficit to a maximum 3 percent of GDP.

Indonesia's economic growth was 4.8 percent last year, the slowest since 2009. The government expects growth to reach 5 percent this year.

The 2017 budget calls for an increase in cigarette excise tax and removal of some electricity subsidies. It also covers the government's plan to switch the rice-for-poor program to a cash transfer for 1.2 million households.

Reuters

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