Fiscal Surplus
The inflation and reduced growth faced by many countries are likely to also affect Indonesia. We need to manage state income and expenditure in a targeted and efficient manner.
The government recorded surplus revenue in the first seven months of 2022. The challenge is how to use the surplus to guarantee sustainability.
As of July 2022, the state income reached Rp 1.55 quadrillion, while state expenditure totaled Rp 1.44 quadrillion. The surplus of Rp 106.1 trillion is equal to 0.57 percent of Indonesia’s gross domestic product (GDP).
Although this is the opposite of the condition in the corresponding period in 2021, when state income recorded a deficit of Rp 336.9 trillion, or 2.04 percent of GDP, the use of the surplus income should be directed in an appropriate manner.
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> Monetary and Fiscal Challenges
Compared with many other countries, Indonesia has a favorable macroeconomic condition. Economic growth in the second quarter (Q2) of 2022 was 5.44 percent. The high prices of agricultural and mining commodities, including coal, have increased tax revenues.
At home, food production is facing a sharp rise in fertilizer prices as well as high labor costs. According to Bank Indonesia (BI), food inflation has reached 10.47 percent, far exceeding the normal limit of 5-6 percent.
At the same time, Indonesia has not been immune to the global surge in energy prices, which has raised the cost of energy subsidies, as we are a net energy importer. Furthermore, the prices of major food products on the world market, especially grains and cereals, remain high, although they have started to decline. At home, food production is facing a sharp rise in fertilizer prices as well as high labor costs. According to Bank Indonesia (BI), food inflation has reached 10.47 percent, far exceeding the normal limit of 5-6 percent.
The inflation and reduced growth faced by many countries are likely to also affect Indonesia. We need to manage state income and expenditure in a targeted and efficient manner.
The government is paying great attention to assisting poor and vulnerable groups that have been affected by the Covid-19 pandemic. As energy and food prices rise as a result of the Russia-Ukraine war, the government has provided energy subsidies for Pertalite fuel, electricity for 450 VA and 900 VA consumers, and for 3-kilogram canisters of liquefied petroleum gas (LPG). The energy subsidies are maintaining household consumption and economic growth.
Nonetheless, we hope the fiscal surplus can be used towards sectors that promote sustainable economic growth, produce value-added and create quality jobs. In the food sector, for instance, apart from fertilizer subsidies, the government should facilitate upstream and downstream investments in agribusiness, expand infrastructure like reservoirs and irrigation networks to anticipate climate change and for flood control, water reserves in the dry season, power generation, tourism, and fisheries, as well as irrigating food crops and supplying households.
In this way, we can hope that the fiscal surplus will also offer measured, medium-term and long-term impacts.
This will have multiple impacts, not only on directly creating jobs, but also on the growth of other derivative industries. General government investments in physical infrastructure and in human resources, especially in science, technology, engineering and mathematics (STEM), will encourage private investments, because they will work more efficiently. In this way, we can hope that the fiscal surplus will also offer measured, medium-term and long-term impacts.
(This article was translated by Aris Prawira)