Widodo targets highest GDP growth in 5 years

Indonesia’s economy is forecast to expand at the fastest pace in five years as higher tax revenue allows President Joko Widodo to trim the budget deficit while ramping up spending on building roads, bridges and seaports.Southeast Asia’s largest economy may grow 5.4% next year, the highest rate since 2013, Widodo, known as Jokowi, said in an address to the parliament yesterday that outlined spending priorities as well as key assumptions and risks for the economy in 2018. Government expenditure is forecast to increase 5% to 2,204.4tn rupiah ($165bn) next year.While Indonesia’s economy has been growing at about 5%, it remains well short of the 7% target set by Jokowi when he came to power almost three years ago. The government is also grappling with a persistent fiscal shortfall and rising debt at a time when the president is seeking to fund a $350bn infrastructure agenda.Tax revenue is projected to increase 9.3% to 1,609.4tn rupiah next year, leaving a budget deficit of 325.9tn rupiah, or 2.19% of the gross domestic product. That represents a significant improvement on the 2.92% estimated this year, a mark just short of a legal limit of 3%. The revenue and spending targets for next year may turn out to be more aggressive than they appear as the government is likely to undershoot its 2017 goals, according to Gundy Cahyadi, an economist at DBS Holdings Ltd in Singapore.“Overall, we see a slight upward bias in the fiscal deficit next year, as compared to the 2.2% target,” Cahyadi said in an e-mail. “We continue to regard Indonesia’s fiscal position as a strength and we are not worried about the fiscal deficit at this juncture.”Jokowi has increased government spending on infrastructure to more than 60% of the annual budget since taking over in 2014, tying his re-election prospects to the programme meant to improve the living standards of the poor. But he has come under fire amid rising government debt, which climbed from 2,605tn rupiah at the end of 2014 to 3,780tn rupiah by the end of July.The government’s priorities next year would be to ensure a more even distribution of wealth, poverty alleviation and job creation, Jokowi said and signalled the infrastructure drive was set to continue. He also promised tax breaks for the industry and vowed to tackle wasteful government spending as well as corruption.Bank Indonesia governor Agus Martowardojo said the central bank could consider further monetary easing provided data was supportive. Indonesia, which was Asia’s biggest rate cutter last year after easing its benchmark rate six times, has been on hold since its last move in October.The Jakarta Composite Index extended gains after Jokowi estimated higher GDP growth and lower fiscal deficit, with the benchmark rising 1% to its highest close since July 3. The index has risen 11% this year.