Poor delivery of 2015 fiscal budget partly is said to have caused the disappointing pace of growth in 2015 in Indonesia, according to DBS.
The 2016 budget assumes a 25% jump in tax revenues, which can be overly-optimistic, looking back at 2015 when the government set a similar target of 30%, but finished the year at about 20% off the tax target. This forced the government to scale back on its expenditure, capex took bulk of the brunt.
"If the government were serious about boosting growth, the savings should come from operational expenditure, which has a lower multiplier effect," notes DBS research.
"While there has been plenty of focus on monetary policy, we reckon that fiscal policy can play the more significant role in boosting growth at this juncture. From the macro risk profile, one main concern is the government's persistent verbal intervention on Bank Indonesia's policy stance. We believe that it is the government, rather than the central bank, that should be more aggressive in providing a boost to the economy."
A revision of the 2016 budget is forthcoming. There is likely to be a longer delay this year, as the government waits for the parliamentary approval of the new tax amnesty law. While the government has committed to pre-spend its budget even before the revision is out, it is important to track the spending on per month basis. Unfortunately, the data is not made available on a regular basis. In the meantime then, we can only rely on anecdotal media and/or company reports.
