Jokowi Introduces Expansive 2022 Budget Bill, Promises Reform to Overcome Prolonged Pandemic, Uneven Global Recovery

Jakarta. President Joko "Jokowi" Widodo has introduced an expansive 2022 budget bill that contains a total of $188 billion in spending to funds reforms in healthcare, social protection, and infrastructure programs in an attempt to overcome a prolonged pandemic and uneven global economic recovery next year. 

The president said that the government would need to spend a total of Rp 2,708 trillion  ($188 billion) next year, up 0.4 percent from Rp 2,697 trillion this year's outlook. The revenue from taxes, dividends, royalties, or grants would reach Rp 1,841 trillion next year, increasing 6 percent from this year's outlook of Rp 1.736 trillion. 

That resulted in Rp 868 trillion in deficits, of 4.85 percent of Indonesia's gross domestic product (GDP), narrowing from this year's Rp 962 trillion deficit or 5.8 percent of GDP, Jokowi told the House of Representatives, in a speech after the state address on Monday. 

"In 2022, we will still be faced with high uncertainties," Jokowi said.  

"We also have to be prepared to face other global challenges, such as threats climate change, increased geopolitical volatilities, and uneven global economic recovery. Therefore, the 2022 state budget must be anticipatory, responsive, and flexible to respond to the uncertainties, but still reflects optimism and prudence," he said. 

Next year, the government targeted GDP growth between 5 and 5.5 percent, up from an estimated 3.7 to 4.5 percent this year. Inflation would remain low at 3 percent, compared to this year's 1.8 to 2.5 percent projection. 

That would allow the 10-year government bond's yield to remain at around 6.82 percent, compared to this year's expected range of 6.34 to 7.24 percent. 

Indonesia could also expect a stable currency with the rupiah's exchange rate to hover around 14,350 against the US dollar, compared to the expected range of 14,200 to 14,600 this year. 

The government saw oil prices in 2022 to increase to stay at $63 per barrel, from this year's $55-$65 price range, due to recovery in global demand, increase in oil production, geopolitical instability, and development of alternative energy sources. 

Due to depleted wells, Indonesia's oil and gas production would struggle to maintain oil productivity at 703,000 barrels per day and gas at 1.04 million barrels of oil equivalent per day. 

Jokowi said the government would focus on structural reforms to get more outcomes from efficient state spending. 

"The 2022 fiscal consolidation will be more focused to support the implementation of structural reforms, especially the acceleration of human resource development, through
reform in the fields of health, social protection, and education.

"Structural reforms are also directed at improving the economic foundation, through regulatory reform and bureaucracy and sectoral support that encourages growth," Jokowi said. 

Next year, the government seeks to spend Rp 255 trillion, or 9.4 percent of the total budget for healthcare. Apart from improving the pandemic handling efforts, Jokowi wanted to use the budget to overhaul the country's healthcare system, particularly the primary care units, or Puskesmas.  

The government would also allocate Rp 427.5 trillion social protection budget to help more than 161 million poor and vulnerable populations to meet their basic needs like food, housing, energy, and education. 

To improve the country's human resources, the government would set aside an education budget of Rp 541.7 trillion, Jokowi said. For infrastructure development, on the other hand, the government only allocates Rp 384.8 trillion, focusing on affordable, reliable energy and food infrastructure, as well as information technology and communication infrastructure. 

Flexible Pandemic Spending

Next year, the government would allocate Rp 321 trillion for Covid-19 Handling and National Economic Recovery (PC-PEN) programs, down from Rp 744 trillion this year. 

Finance Minister Sri Mulyani Indrawati said the government prepared a special clause in the 2020 budget bill that allows the government to shift budget allocation without the House's approval, taking into account the possibility of the Covid-19 pandemic that could still turn worse next year. 

"Of course, we know that Covid is an influencing factor and is highly considered in designing the 2022 state budget," Sri Mulyani said during a press conference on Monday. 

"So, we will also create a 2022 scheme where refocusing or reallocation will be carried out automatically, so it is hoped that it will not cause any disruption if there is a Covid-19 spike again as happened in the delta variant. We hope that doesn't happen, but the state budget must prepare for things that are not wanted to happen in 2022," she said.

Targets

Presiden Jokowi said he hoped the next year's spending would help the government achieve its development targets, including a reduction of open unemployment to 5.5 to 6.3 percent, compared to 6.3 percent in February this year. 

He said the government also sought to reduce the poverty rate to between 8.5 and 9.0 percent, from 10.1 percent this year, according to the latest statistics in March. The social protection budget would also help the country narrowing inequality, as measured by the Gini ratio, to the range of 0.376 to 0.378 next year from 0.384 this year. 

Lastly, Jokowi said he would like to see Indonesia's development index improving to between 73.41 and 73.46 next year, from 71.8 currently. 

Said Abdullah, the chairman of the House's budgetary body, said the government budget and targets were "realistic" given the constraints in the economy next year. Still, the Indonesia Democratic Party of Struggle (PDI-P) politician said the government should keep an eye on the deficit. 

Next year would be the last year the government can run a deficit exceeding 3 percent of the GDP threshold — which temporarily lifted last year to fight the pandemic — Said said. He hoped the government would be able to finance development programs from other sources than debts. 

"More creative steps must be taken to optimize contribution from state-owned enterprises and investment," Said said.