Indonesia Projects 2024 Budget Deficit Increase to 2.7% of GDP Amid Rupiah Decline

Indonesia's finance minister announced that the country's budget deficit is projected to rise to 2.7% of GDP in 2024 due to the rupiah's depreciation and reduced tax revenue from the mining sector. The government aims to manage debt and maintain macroeconomic stability.

Indonesia's Budget Deficit to Rise to 2.7% of GDP Due to Weaker Rupiah and Lower Tax Revenue

The government's initial objective was to achieve a deficit of 2.29% in 2024, which was higher than the deficit of 1.65% in 2023.

Last month, the rupiah reached its lowest level in four years, trading at 16,475 per U.S. dollar due to a strong currency and apprehension regarding the incoming government's spending plans. It experienced a decline of approximately 6.3% in the year's first half.

According to Finance Minister Sri Mulyani Indrawati (via Financial News), the government has increased its expenditure on petroleum subsidies and food assistance due to the weaker rupiah. Additionally, the moderated price of commodities has impacted tax revenue, resulting in a broader deficit estimate.

Nevertheless, Sri Mulyani stated that the government will continue to exercise caution in its debt management and will optimize the utilization of its surplus cash from the previous year's budget, which amounted to 100 trillion rupiah ($6.15 billion), to mitigate debt issuance.

"Hopefully this will help maintain macroeconomic stability, especially the exchange rate movements and government bond yields," she told the parliamentary budget committee.

The government stated it could issue a reduced debt this year, specifically 214.6 trillion rupiah.

Indonesia's First-Half Fiscal Deficit at 0.34%, Tax Revenue Decline Prompts Government Caution

The government's fiscal deficit in the first six months of 2024 was 0.34%, as evidenced by the data presented at the hearing. Revenue decreased by 6.2% compared to last year's period, primarily due to decreased tax revenues.

According to Business Times, Sri Mulyani, mining-related companies have requested an earlier refund for their tax overpayments to maintain liquidity during periods of low global demand.

Tax revenue is anticipated to fall four percentage points shy of the government's target by the end of the year, reaching 2,218.4 trillion rupiah. However, total revenue is anticipated to attain the target.

Nevertheless, it will not be sufficient to offset the anticipated increase in expenditure this year, which is anticipated to be 3,412.2 trillion rupiah, or 2.6 percentage points higher than the target.

"We hope that, with the current global uncertainties, all government programs can still be executed in the second half to support economic growth," she added, adding that the economy is expected to expand from 5% to 5.2% in 2024.

The committee chair, Said Abdullah, cautioned the government about the possibility of reduced tax revenue this year and recommended that the government postpone projects that impact economic development less.

$1 is equivalent to 16,265,000 rupiah.

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