Indonesia increases COVID-19 budget again amid soaring deficit
June 17, 2020
The government has again increased its planned spending on Indonesia’s battle against the COVID-19 pandemic amid plunging tax revenue and a widening state budget deficit.
It is now setting aside Rp 695.2 trillion (US$49.63 billion) in funds for healthcare and economic stimulus spending to cushion the impact of the outbreak. This is the latest increase from the previous allocation of Rp 677.2 trillion, as the government ups its budget allocation for labor-intensive industries and regional administrations.
The speed at which assumptions have been revised underscores the ferocity with which the virus is ravaging the economy.
“The situation is developing rapidly, so the stimulus program may change again,” Finance Minister Sri Mulyani Indrawati said during a livestreamed press briefing on Tuesday. She added that the government would remain flexible in making budget changes.
The pandemic has forced many businesses to shut down amid efforts to contain the spread of the coronavirus, which has infected more than 40,000 people in Indonesia as of Tuesday afternoon. The slowdown in economic activity has taken a toll on the country’s gross domestic product (GDP) growth, which plunged to a 19-year low of 2.97 percent in the first quarter.
Rp 87.55 trillion of the COVID-19 budget will be allocated to healthcare, Rp 203.9 trillion to strengthening social safety nets and Rp 123.46 trillion to incentives for micro, small and medium businesses.
As much as Rp 120.61 trillion will be allocated for business incentives, which include tax incentives, and Rp 106.11 trillion to support ministries and regional administrations, an increase from Rp 97.11 trillion previously allocated. Meanwhile, Rp 53.37 trillion is allocated to stimulus measures for state-owned enterprises (SOEs) and labor-intensive businesses, up from the Rp 44.57 trillion set aside previously for that purpose.
The bigger budget of Rp 9 trillion for corporations will be allocated as working capital loans for labor-intensive businesses, with details on the schemes being finalized, said Finance Ministry Fiscal Policy Agency head Febrio Kacaribu during the same briefing.
Meanwhile, the increased spending for ministries and regional administrations will be allocated to regional loans as well as additional buffer for special allocation funds (DAK), which will be disbursed in the form of labor-intensive programs that can be finished in four to five months, according to Finance Ministry Fiscal Balance Director General Astera Primanto Bhakti.
“We hope this additional DAK buffer can help regional economies improve people’s welfare,” he said.
The government now expects the state budget deficit to reach 6.34 percent of GDP this year as spending is soaring while revenue collection is falling.
Indonesia recorded a widening budget deficit in May as the coronavirus pandemic hit all the economic sectors in the second quarter of the year, the Finance Ministry announced Tuesday.
The deficit reached Rp 179.6 trillion or 1.1 percent of GDP, as of May, a sharp increase of 42.8 percent compared to the same month last year.
State income nosedived 9 percent year-on-year (yoy) to Rp 664.2 trillion during the same period, while expenditure shrank by 1.4 percent yoy to Rp 843.9 trillion despite the government’s move to step up its social assistance disbursement.
Social spending was recorded at Rp 78.9 trillion in May, up 30.7 percent from the same month last year.
Indonesia has sold Rp 369 trillion worth of government bonds as of May, a huge increase of 98.3 percent compared to the same period of last year, to patch up the deficit.
“The decline in state income is in line with our expectation, as the coronavirus pandemic put heavy pressure on businesses, individuals and regional administrations,” Sri Mulyani Indrawati said during the briefing.
Tax collection dropped 10.8 percent yoy to Rp 444.6 trillion as of May as revenue from almost all the economic sectors, such as manufacturing, trade, financial services, mining and transportation, fell.
Sri Mulyani projected the economy would shrink by 3.1 percent in the second quarter and grow at zero percent to 1 percent this year, adding that the government vowed to continue to disburse funds to cushion the virus-battered economy.
Bank Central Asia (BCA) chief economist David Sumual called on the government to expedite its stimulus spending in the second quarter this year, adding that the spending’s economic effect would be much lower if the government were to spend the budget later this year.
“We think the economy has hit the bottom in the second quarter, but the government has yet to disburse all of the stimulus spending,” David said on Monday. “It must speed up the spending for it to be more effective.”