• The budget means a budget deficit of 4.85% of GDP against 5.82% in 2021
  • The vote of the plenary parliament is still necessary, but generally a formality
  • Budget aims to support 5.2% economic growth next year
  • Economist warns of withdrawing budget support too quickly

JAKARTA, Sept.28 (Reuters) – Indonesia’s parliamentary budget committee on Tuesday approved President Joko Widodo’s 2022 budget with total spending of around 2,714 trillion rupees ($ 190.40 billion), a budget deficit equal to 4.85% of gross domestic product.

The budget was aimed at supporting an economic recovery next year with 5.2% GDP growth, near the middle of a proposed range of 5.0% to 5.5%, the committee chairman Said said. Abdullah, as the economy sheds the impact of the coronavirus pandemic.

The approved spending was slightly above the 2,708,700 billion rupees approved by the president in August, while the revenue target was approved at around 1,846 billion rupees.

The 2022 deficit is lower than the 5.82% estimated this year and the president said in his budget proposal that he provided the basis for reducing the deficit to below 3% in 2023 to comply with applicable laws.

A vote in plenary parliamentary session is still necessary, but committee approval is usually adopted.

“Next year is a very important year for us as we aim to maintain the economic recovery while making efforts to restore the fiscal position and achieve fiscal consolidation in 2023,” said Finance Minister Sri Mulyani. Indrawati at the hearing.

She said economic conditions next year would remain “uncertain and difficult” not only with regard to the pandemic, but also as many countries are expected to tighten monetary policies.

Southeast Asia’s largest economy emerged from recession in the second quarter of the year. As the momentum of the recovery was affected by further restrictions on coronaviruses in July, the central bank said last week that domestic activity had gradually improved since restrictions eased in late August.

Even though the economy is expected to recover if the pandemic remains contained, economists have warned against withdrawing budget spending too quickly to reach a deficit of less than 3% of GDP by 2023.

“We are concerned about the impact of the fiscal contraction because at the same time, it is still questionable whether loan growth could return to pre-pandemic levels by then,” said David Sumual, economist in head of Bank Central Asia.

Monthly bank loans, which posted annual contractions between September and May, have shown signs of recovery but remain well below pre-pandemic levels, around 10%. In August, loans increased 1.16%.

($ 1 = 14,255 rupees)

Reporting by Fransiska Nangoy; Editing by Martin Petty and Ed Davies

Our standards: Thomson Reuters Trust Principles.


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