Compiled by Reuters

Indonesia Revises 2015 Budget Assumptions, Ability to Meet Revenue Target Doubted

BY :ADRIANA NINA KUSUMA

FEBRUARY 06, 2015

Corporate and financial investors are betting on Indonesia’s economy. (EPA Photo/Mast Irham)

[Updated at 8:40 p.m. on Friday, Feb. 6, 2015]

Jakarta. Indonesia’s parliament agreed to revisions to 2015 budget assumptions to reflect sharply lower oil prices, but an analyst doubts the revenue from other sources can make up for a shortfall.

A parliamentary committee on Friday approved a series of revisions in assumption for President Joko Widodo’s proposed 2015 budget, which is due to be voted on later this month. One key revision is the oil price will average $60 a barrel this year. In an initial budget for 2015 presented in September by Joko’s predecessor, the oil-price assumption was $105 a barrel.

Also revised from September was the estimated growth rate for 2015, now 5.7 percent instead of 5.8 percent, and the projected average rupiah exchange rate, now 12,500 to the dollar instead of 11,900.

The economy grew 5.02 percent in 2014, the statistics bureau reported on Thursday, and many economists doubt the economy can grow more than 5.5 percent this year.

Indonesia is a net importer of oil, so is currently benefiting from lower world prices. The plunge has made it possible for Joko, who took office in October, to slash costly fuel subsidies.

But Indonesia still has significant domestic oil production, an important source of government revenue. One of the new adoptions for the 2015 budget is for lower oil and gas extraction — of 825,000 barrels per day.

The proposed budget anticipates total oil and gas non-tax revenue at 81.37 trillion rupiah, far less than the 224.26 trillion rupiah assumed in September. The Finance Ministry targets revenue from tax of 1,489.3 trillion rupiah, about 109 trillion rupiah more than September’s target.

Vikram Nehru, an economist at the Carnegie Endowment for International Peace, has said there is a problem with the government’s revenue forecasts.

“Plummeting international oil prices will mean sharply lower oil revenues for Indonesia’s 2015 budget, which could potentially eviscerate the economic centerpiece of [Joko’s] campaign [...] to double infrastructure investment this year,” Nehru wrote this week.

“The draft budget before parliament obscures this problem by substituting lower oil revenue with unrealistic projections for non-oil tax revenue. Not only will the tax authorities almost certainly fall short of the budget targets, their efforts to reach them could become overzealous and damage the country’s fragile investment climate,” he wrote.

Finance Minister Bambang Brodjonegoro has told parliament he wants 2015 to be “the awakening year of tax collection”. His tax office has been cracking down on tax evasion.

Reuters

 

The 2015 state budget revision, which should be the first budget to reflect President Joko Widodo's reform agenda, will be subject to parliament's approval, due later this month. (Reuters)

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