Indonesia’s 2023 Budget Law aims for 2.8% shortfall to escape commodity-prices trap

With a much lower deficit target, the government is also set to cut debt issuance to Rp 696.3 trillion, which is a 26 per cent drop from this year’s revised Rp 943.7 trillion.

Vincent Fabian Thomas

Vincent Fabian Thomas

The Jakarta Post


Sri Mulyani speaking at Group of Twenty (G20) Tax Symposium, on July 14, in Bali.(Finance Ministry/Biro KLI)

September 30, 2022

JAKARTA – The House of Representatives passed the 2023 state budget bill into law, restoring a targeted shortfall of below 3 percent, which has been detaining Indonesian fiscal expansion for the past three years due to the COVID-19 pandemic, while also calculating the risk of a commodity-windfall finale.

The government set the 2023 budget deficit at 2.84 percent of GDP, much lower than this year’s revised figure of 4.5 percent. That target is equivalent to Rp 598.2 trillion (US39.31 billion), which drops by almost a third of this year’s revised Rp 840.2 trillion.

It also proves that the government has managed to keep its promise of not overstaying the “above 3-percent deficit policy” as mandated by 2020 law on COVID-19 response, which ordered the measure to end by 2023.

With a much lower deficit target, the government is also set to cut debt issuance to Rp 696.3 trillion, which is a 26 percent drop from this year’s revised Rp 943.7 trillion.

“We will ensure our financing scheme is carried out safely and carefully, especially in a situation where the global financial sector is experiencing enormous dynamics,” Finance Minister Sri Mulyani Indrawati told reporters after the plenary meeting on Thursday.

Sri Mulyani lauds both much lower deficit and debt-issuance targets, as the world is facing risk due to an aggressive United States Federal Reserve rate hike that will make borrowing even more costly.

The deficit is calculated based on a planned spending of nearly Rp 3 quadrillion next year that goes above the targeted revenue of just Rp 2.4 quadrillion. The former falls by 1.5 percent annually, while the latter increases by 8.7 percent from this year’s revised budget respectively.

The budget also projects a 15.7 percent annual hike on tax revenue to Rp 1.7 quadrillion from Rp 1.4 quadrillion this year, while nontax revenue is estimated to drop by 8.4 percent annually to Rp 441.4 trillion from this year’s Rp 481.6 trillion.

Sri Mulyani explained commodity prices are expected to normalize next year and that the Finance Ministry has accounted for that risk in the 2023 budget formula, while also ensuring the government is prepared with a plan to combat the risk.

“We have made a plan to make a ‘safety net’ for the budget if the commodity prices suffer a steep drop due to weakening economy in 2023,” Sri Mulyani said, adding the ministry would also utilize many policy reforms in tax and nontax, especially on the 2021 Tax Harmonization Law.

Summary of the 2023 state budget plan

Government spending On the other hand, spending on central government in the 2023 budget sees a 2.39 percent annual drop to Rp 2.2 quadrillion, from this year’s revised Rp 2.3 quadrillion.

However, regional and village authorities get to spend 1.23 percent more at Rp 814.7 trillion from the preceding year, at Rp 804.8 trillion.

Sri Mulyani said the government would continue to make use of spending to maintain the pace of economic recovery as well as to maintain people’s buying power.

Other focuses on next year’s spending also include a new capital-city project, general election, improving the country’s human resources as well as completion of national strategic projects.

The government allocates Rp 212 trillion worth of energy subsidy next year with fuel and electricity set to consume Rp 139 trillion and Rp 72 trillion, respectively. The total figure rises slightly by 1.7 percent from Rp 208.5 trillion this year.

A compensation scheme — payables to state-owned energy companies for selling goods below market price — is set at around Rp 127 trillion, but will be tagged as a reserve, and the amount can still change depending on the fluctuation in exchange rates and commodity prices. The figure fell by more than half from Rp 293.5 trillion allocated this year.

The government also aims for an economic growth of 5.3 percent next year, just a tad higher than this year’s target of 5.2 percent, while inflation is projected at 3.6 percent, which is 0.3 percentage points higher than initially proposed in August.

With a slightly better economic-growth target, the government seeks to reduce the poverty level to between 7.5 percent and 8.5 percent next year, while maintaining unemployment rates within the range of 5.3 percent and 6 percent.

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