Finance Minister Sri Mulyani Indrawati, center, delivers a press conference on the 2019 state budget in Jakarta on Tuesday. (Antara Photo/Akbar Nugroho Gumay)

Indonesia Posts $25b State Budget Deficit in 2019

BY :NUR YASMIN

JANUARY 07, 2020

Jakarta. Indonesia's state budget deficit widened last year as tax revenues from commodity trade dropped amid falling demand and prices in the global market. 

The deficit in 2019 was at Rp 353 trillion ($25 billion), or 2.2 percent of the country's gross domestic product, widening from Rp 269 trillion or 1.9 percent of the GDP a year earlier, the Finance Ministry said on Tuesday. 

"[The deficit] exceeded our target of 1.8 percent of the GDP.... It swelled dramatically because of pressures on our state income," Finance Minister Sri Mulyani Indrawati said in a press conference in Jakarta on Tuesday.

Total revenue from taxes, profit-sharing from sales of natural resources, grants, state-owned enterprises' profits and other state incomes exceeded Rp 1,957 trillion last year, or just 90 percent of the government target of Rp 2,165 trillion. 

The government spent more than Rp 2,310 trillion last year, or 94 percent of its target of Rp 2,461 trillion. 

Sri Mulyani attributed the decline in revenues to Indonesia's shrinking trade activity amid a persistent trade war between the United States and China. 

Indonesia's export and import contracted by -1.2 percent and -7.6 percent respectively as the trade war suppressed prices of the country's main commodities, especially palm oil and coal.

The price declines led to the government collecting less income from export and import taxes.

"Our export fell by 7.6 percent because of low global demand and low coal prices. The prices of mining commodities were at its lowest since the global financial crisis [of 2008]," Sri Mulyani said.

Demand for oil dropped by 10-12 percent, coal by 28 percent and crude palm oil by 3.4 percent. 

"From the first to the third quarter last year, investment was slow. Our [fuel] import decreased by 9.9 percent because we started adopting the biodiesel [B30] program," Sri Mulyani said, referring to a government program to mix more palm oil-based fuel with diesel fuel. 

Consider Ourselves Lucky

Despite the higher than expected deficit, Sri Mulyani said Indonesia should consider itself lucky seeing what had happened in other countries last year.

She said the current global economic slowdown and unstable international politics had highly affected emerging countries' economies.

"The global economic environment, seen from a geopolitical point of view, is still very dynamic, to say the least. We have an unfinished Brexit, US economic shutdown, continuing protests in Hongkong, US-China trade war, economic crisis in Argentina, Japan-Korea trade war, et cetera," Sri Mulyani said.

The minister said these countries responded to the same pressures through expansive and relaxed monetary policies, such as reducing interest rates.

The ministry's data show India's deficit last year was 7.5 percent of its GDP, the US 5.6 percent, Brazil 7.5 percent, China 6.1 percent and Malaysia 3 percent.

Sri Mulyani said high domestic consumption continues to support Indonesia's economy, the largest in Southeast Asia. "Consumption is growing strong because inflation is low and under control. All in all, things are looking good," Sri Mulyani said.

"Despite the widening deficit, our state budget can still support our economy. We've kept economic growth above 5 percent [5.2 percent in 2018 and 5 percent in 2019] thanks to strong domestic demand. We've done better than other countries that are experiencing the same pressures," Sri Mulyani said.

She mentioned slow economic growth in the US, from 3.1 percent in 2018 to 2.1 percent in 2019; Singapore, from 2.6 percent to 0.7 percent; and Europe, from 1.6 percent to 1.2 percent.

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