Indonesia’s 2020 budget deficit now seen to double initial target

Finance Minister Sri Mulyani Indrawati expects pressure on the economy to continue in Q2. (Reuters pic)

JAKARTA: Indonesia’s budget deficit is expected to widen to 6.27% of gross domestic product this year, more than double the initial ceiling, as President Joko Widodo ramps up stimulus to counter the blow from the coronavirus pandemic.

“We have seen the impact on the economy as it is hit very hard, and the pressure will likely continue in the second quarter,” Finance Minister Sri Mulyani Indrawati told reporters Monday. “We hope this pressure can ease in the third and last quarters. We still hope for the best, for the economy to recover.”

The government will have to again revise the assumptions underpinning its budget, Indrawati said, adding that the budget shortfall now is expected at 1,028.5 trillion rupiah (US$69.3 billion).

The government has set aside a total of 641.7 trillion rupiah as part of its emergency virus response, the finance minister said.

The deficit change comes less than two months after the government announced it was abandoning a deficit cap of 3% it had observed since 2003, and estimated the shortfall at 5.07% of GDP.

The speed with which assumptions have been revised underscores the ferocity with which the virus is moving through the economy.

As of Monday, Indonesia had more than 18,000 confirmed cases and nearly 1,200 deaths from Covid-19.

The budget cap, introduced in the wake of the Asian financial crisis, was seen as a necessary restraint on irresponsible spending.

Now it’s considered vital to relax the rule so the government can buttress the economy against the pandemic and support the overstretched health sector.

The government on Monday also unveiled details of its virus exit strategy, which would reopen the economy in stages and also divide parts of the country up according to risk from the virus.

Despite that, policymakers in Southeast Asia’s biggest economy increasingly worry the downturn could be deeper than initially expected.

On April 1 the government slashed this year’s GDP forecast to 2.3%, from 5.3% previously, while warning the economy might even contract 0.4% in a worst-case scenario.

The central bank has suggested even the reduced forecasts may still be too high, while Indrawati noted capital outflows have already eclipsed their levels during the global financial crisis.

Assistance for state-owned companies

Indrawati also detailed a US$10 billion assistance package for state-owned companies Monday.

The assistance – in forms including subsidy payments, working capital and state capital – includes 99 trillion rupiah for power utility Perusahaan Listrik Negara and oil and gas firm Pertamina, both of which are considered strategic entities.

The government will also provide 8.5 trillion rupiah to ailing flag carrier Garuda Indonesia.