State Budget Deficit Can Be Reduced Earlier

As of 14 Dec. 2022, the 2022 State Budget deficit accounted for 1.22 percent of gross domestic product, lower than the initial target and projection.

KOMPAS/RADITYA HELABUMI

Passengers wait for the Transjakarta bus at the Karet stop, Sudirman area, Jakarta, during work hours, Monday (5/12/2022). Indonesia's economic growth in 2023 is projected to be above 5 percent. However, high global economic uncertainty has the potential to increase pressure on the domestic economy.

JAKARTA, KOMPAS – To anticipate the impact of the global economic slowdown next year, the government plans to reduce the deficit in the State Budget (APBN) in early 2023. With a lower deficit projection and additional fiscal space during the year, state expenditures can be prioritized to maintain the buying power of vulnerable groups and help drive the wheel of the national economy.

Data from the Finance Ministry as of 14 Dec. 2022 showed that the deficit realized in the 2022 state budget stood at Rp 237.7 trillion (US$15.37 billion) or 1.22 percent of gross domestic product (GDP).

This is far lower than this year's target of 4.5 percent as stated in Presidential Regulation No. 98/2022, as well as the government's target of 3.92 percent for this year. As for the 2023 State Budget, the government has targeted a deficit of 2.84 percent to reinstate a legal limit below 3 percent.

At a press conference on the state budget held in Jakarta on Tuesday, Finance Minister Sri Mulyani said the year-end deficit realization was far smaller than the government's target. This was made possible because the state revenu realization reached Rp 2.480 quadrillion as of 14 Dec. 2022, exceeding the initial target of Rp 2.266 quadrillion.

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The high revenue realization was due to tax revenues worth Rp 1.634 quadrillion, or 110 percent of the targeted Rp 1.485 quadrillion, and nontax state revenue (PNBP) of Rp 551.1 trillion, or 114.4 percent of the targeted Rp 481.6 trillion. In addition, customs and excise revenues reached 98.01 percent of the targeted Rp 299 trillion.

Meanwhile, state expenditure had not been fully realized. As of 14 Dec. 2022, government spending stood at Rp 2.717 quadrillion, or 87.5 percent of the targeted Rp 3.106 quadrillion. This meant the government had to spend the remaining budget of Rp 388.8 trillion before closing the 2022 books in two weeks.

With the low deficit, the portion of our state budget’s (debt) financing has decreased drastically, indicating that our state budget is getting healthier again.

Sri Mulyani said the low deficit showed that the State Budget was healthy amidst an uncertain economic climate. The government could also reduce debt financing in the state budget to Rp 469.8 trillion, far below the initial target of Rp 840.2 trillion.

"With the low deficit, the portion of our state budget’s (debt) financing has decreased drastically, indicating that our state budget is getting healthier again," she said.

AGUS SUSANTO

A densely populated residential area with a multi-storey building background in the Tanah Abang area, Central Jakarta, Monday (31/10/2022). The government will try to reduce state spending until the end of this year. The remainder of the 2022 budget will be saved for use as a reserve fund or cash buffer in the 2023 State Budget to anticipate economic uncertainty..

Cash reserves

State Budget Policy Center acting head Wahyu Utomo of the Finance Ministry’s Fiscal Policy Agency said that with this low deficit, the government could accumulate cash reserves or cash buffers to anticipate the economic uncertainty next year. In other words, there would be additional fiscal space in the 2023 State Budget.

"This is the foundation for consolidation in 2023. Next year, our burden will be even lighter because we already have sufficient buffers and risk control," Wahyu told Kompas.

We are optimistic that the deficit can be maintained at that level until the end of the year.

With around two weeks remaining in 2022, this year's fiscal deficit was also expected to be far below the target.

"At present, it cannot be confirmed, but considering that there are only a few weeks left to the year and the deficit is at 1.22 percent to date, we are optimistic that the deficit can be maintained at that level until the end of the year," said Wahyu.

The additional fiscal space would be directed at maintaining growth of the national economy. One of the government's priorities would be to maintain household consumption amid next year’s potential slowdown in exports, imports and investment.

Spending

Deputy director Eko Listiyanto of the Institute for Development of Economics and Finance (Indef) said the low deficit showed that fiscal consolidation was going well after two consecutive years during the Covid-19 pandemic, when the state budget deficit was pushed above 3 percent. This achievement could help the state budget’s transition to 2023 smoother.

On the other hand, a low deficit also indicated less precise government budget planning. According to him, this could be seen from the contribution of government spending to GDP, which contracted during 2022.

“It means there is an execution problem, some ministries or agencies can quickly execute spending, and some can't. This means that our high economic growth this year will be driven more by the private sector and public consumption as the government's contribution declines," he said.

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With additional fiscal space next year as a result of this year's low deficit, Eko suggested that the government prioritize state budget spending to maintain consumption among vulnerable people, rather than the middle to upper classes.

He also criticized the government's plan to roll out purchase subsidies for motorcycles and electric cars next year, as this policy was deemed to benefit more affluent people.

"The strength of our economy is domestic consumption, which must be prioritized to protect the most vulnerable among the middle and lower classes, [instead of] the middle class, let alone the upper class," said Eko.

The government's incentive policy should be directed at reducing shocks in the labor-intensive and start-up sectors, which had already laid off many workers. Incentives should be aimed at avoiding layoffs.

This article was translated by Hendarsyah Tarmizi.