Reuters/Jakarta
Indonesia’s fiscal deficit is not expected to exceed a legal limit this year as government spending has been lower than expected, the new finance minister said yesterday, a step that would allow President Joko Widodo to avert a political crisis.
A shortfall in tax revenue estimated at $6.15bn threatened to push the 2014 budget deficit to breach a legally binding limit of 3% of gross domestic product.
But Indonesia’s new Finance Minister, Bambang Brodjonegoro, told Reuters the deficit would be below that, as lower-than-expected government spending, which included a cut in fuel subsidy costs, is set off against smaller tax collections.
“For sure, we are not expecting it will be close to 3% (of GDP). It will be around our targeted deficit of 2.4%,” said Brodjonegoro, who was promoted from vice minister on Monday. He expected government spending to be 7% to 8% less than the 1,877tn rupiah ($154.87bn) budgeted for this year.
Parliament passed a law in 2003 limiting the budget deficit to below 3% of GDP in a bid to prevent a repeat of the financial crisis of 1998 that ended the 32-year rule of autocratic leader Suharto.
Breaking the budget law could feasibly embolden parliament to launch an impeachment bid, even though the budget mess is the responsibility of Widodo’s predecessor, former president Susilo Bambang Yudhoyono.
The main driver behind the budget deficit was ballooning fuel subsidies, which could be cut as early as this week, an adviser to the president told Reuters.
Brodjonegoro declined to specify when a fuel subsidy cut would happen, saying it would take place “as early as possible.”
Indonesian fuel prices are among the cheapest in the region, with gasoline costing 6,500 rupiah a litre, and diesel costing 5,500 rupiah.
A sharp drop in global oil prices has helped limit the government’s subsidy costs. The market price of subsidised fuel is at around 8,750 rupiah, said Dian Ayu Yustina, an economist with Bank Danamon. Brodjonegoro said the government would not scrap the fuel subsidy, indicating the hike would probably be less than 3,000 rupiah.
The government plans to cap the fuel subsidy next year. The fuel price hike is expected to ease domestic demand and allow state oil firm Pertamina to keep to its quota of 46mn kilolitres this year, Brodjonegoro said. Pertamina, which is the main distributor of subsidized fuel, had expected to exceed the quota in early December and need 1.9mn kilolitres more, said Hanung Budya, the company’s director of marketing and trading.