Deficit Financing Becomes a Challenge for Government

Kompas/Heru Sri Kumoro

Finance Minister Sri Mulyani gave a statement to reporters after attending the DPR Plenary Meeting at the Parliament Building Complex, Senayan, Jakarta, Thursday (20/5/2021). The plenary meeting contains the government\'s delivery agenda on the Macroeconomic Framework and the Principles of Fiscal Policy for the 2022 State Revenue and Expenditure Budget (RAPBN).

JAKARTA, KOMPAS — Financing the budget deficit has become a challenge that the government has to cope with amid efforts to recover the economy from the COVID-19 pandemic. Therefore, the reallocation of the state budget should be focused on priority programs that have a multiplier effect on recovery.

The government has set the deficit in the 2022 draft state budget (RAPBN) at 4.85 percent of gross domestic product (GDP). The target is in line with the government\'s fiscal consolidation program to cut back the deficit to a maximum 3 percent of GDP in 2023.

During an economic discussion held by Kompas daily on Tuesday (7/9/2021), the head of the Fiscal Policy Agency of the Finance Ministry, Febrio Kacaribu, said the expenditure plan in the 2022 RAPBN would be an important part of the fiscal measures to achieve the 3 percent deficit target in 2023.

"For this reason, the 2022 RAPBN is designed to remain flexible and sustainable so that it can be responsive, anticipatory and adaptive to support the acceleration of COVID-19 mitigation efforts and socioeconomic recovery," said Febrio.

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He said the state budget allocation in 2022 would be focused on priority programs in the fields of health, social protection, education, infrastructure, information and communication technology, food security and tourism. The state expenditure in the 2022 RAPBN is projected to reach Rp 2.708 quadrillion (US$190.22 billion).

These priority areas were chosen because they are believed to boost household spending, investment, export and production, which have been held back since the beginning of the COVID-19 pandemic.

"The strategy for accelerating socioeconomic recovery will continue to be prioritized on strengthening health as the key to economic recovery," said Febrio.

The recovery in priority sectors next year, he continued, will also be supported by structural reforms as part of the implementation of the Job Creation Law, the operation of the Investment Management Agency and the implementation of the Risk-Based Online Single Submission system.

KOMPAS/AGUS SUSANTO

Aerial photo of the final phase of the Inner City Elevated Toll Road project, section A of the Kelapa Gading-Pulo Gebang section in Cakung, East Jakarta, Thursday (29/7/2021).

Quality spending

During the discussion, a lecturer at the School of Economics and Business at the University of Indonesia (UI), M. Chatib Basri, said improving the quality of state spending would be the key for the government in pursuing economic recovery without disrupting sustainable fiscal stability.

“The state budget reallocation is an absolute must. Financing priorities should be focused on the health sector, social protection, MSMEs [micro, small and medium enterprises] that have a multiplier effect for the economy," said Chatib.

He further pointed out that the economy would be able to recover only if the country could overcome the pandemic. If the reallocation of state spending is directed to priority programs, he believes the budget deficit can be maintained within the targeted level and additional debt can be reduced. Tax revenues should also be increased through an improvement of tax administration so that it would not bring an extra burden to tax payers, he added.

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Meanwhile, the rector of Atma Jaya Catholic University, A. Prasetyantoko, said the government\'s plan to implement a stricter fiscal policy should be reconsidered because it was still uncertain when the pandemic would end.

"The target that we have to cut back the state budget deficit to a maximum 3 percent in 2023 should be based on the development of the situation. If the situation does not allow for the implementation of a strict budget, fiscal policy can be directed to meet our needs to make our human capital more competitive," said Prasetyantoko.

He said the development of human resources should be the government\'s top priority. Amid a crisis situation and with limited fiscal capacity, the government has to choose to prioritize financing physical development projects or funding the improvement of quality of human resources through strong social protection and health programs, he added.

“Human capital development is so urgent that we have to choose it. This crisis has seriously hit the people, especially the very poor,” said Prasetyantoko.

Meanwhile, SMERU researcher Athia Yumna said a solid social protection program could help prevent a rise in poverty rates. SMERU\'s research indicated that without social assistance programs during the pandemic, the poverty rate could reach 13.38 percent, Athia said. The figure is higher than the 10.14 percent poverty rate recorded in March.

This article was translated by Hendarsyah Tarmizi.