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In 2022, the government intends to continue spending on the spaces most affected by the COVID-19 pandemic: fitness and social assistance.
An aerial Image of the Indonesia Parliament complex in South Jakarta, Indonesia.
At the end of September, the Indonesian legislature passed the 2022 state budget, which comes in at around $190 billion. At the time of this writing, a completely finalized and up to date version was not yet available on the Ministry of Finance’s web portal so I’ll be using some figures from the draft budget, which contains only slight differences from the one accepted by the legislature. Like many budgets being passed these days, Indonesia’s is underpinned by an expectation that things will return to a state of semi-normalcy soon, and this is reflected in many of the underlying assumptions.
The biggest of these is that GDP growth will recover to around 5 percent in 2022, which will boost tax revenue to IDR 1,500 trillion (approximately $106 billion) and help close the deficit. In order to cover the extraordinary fiscal stimulus undertaken during the pandemic, Indonesia has been running larger-than-usual deficits in the last two years: 6.14 percent of GDP in 2020 and an estimated 5.82 percent in 2021. By next year, they want to bring this down to 4.85 percent. Yet even with optimistic revenue projections, the government is estimating it will need IDR 868 trillion ($61.5 billion) to finance the 2022 deficit, more than double what was required in 2019.
With low interest rates, a strengthening rupee, and a shrinking existing account deficit, now is an ideal time to run short-term fiscal deficits to underpin a post-pandemic economic recovery. And this happens to be the conclusion reached through Indonesia’s report. monetary authorities. While its long-term goal is to reduce the deficit to 3% of GDP, the 2022 budget foresees higher overall spending than in 2021. In other words, they’re not cutting government spending and if they have to borrow more to do that, I think that’s anything they can live with.
This includes IDR 96 billion for the Ministry of Health, IDR 78 billion for the Ministry of Social Affairs, IDR 134 billion for the Ministry of Defense, and IDR 111 billion for the National Police. Budget allocations for the Ministry of Health and the Ministry of Social Affairs Matters decreased compared to 2021, while the Ministry of Defense and the National Police saw their budgets increase, leading to some criticism. But these pieces don’t tell the whole story, as really significant amounts are transferred directly to local governments or in the form of grants and other non-departmental expenditures.
Taking into account those various other movement mechanisms, the Ministry of Finance estimates that health and social assistance expenditures constitute 25% of the total budget for 2022. This is lower than last year’s high of 30 percent, but above the pre-pandemic point of 18 consistent with the penny. Defense spending, on the other hand, remains at its previous point, around 5% of the budget. If you look at spending levels relative to the overall budget, adding movements and grants, it’s clear that in 2022 the state intends to continue spending above its old baseline in the areas hardest hit by the pandemic: health and social care. As it begins to decline in anticipation of normalization, it will be attractive to see how much fiscal those spaces will continue to gain in the long run. Budgets.
The 2022 budget suggests that the government isn’t letting it pass just yet, even as it expects the amount of deficit-funded fiscal stimulus it wants to continue pumping into the economy to start tapering off. It remains to be seen whether the economy will grow 5% and generate the expected tax revenues, however, policymakers have shown that they are willing to borrow to close the gap. And while it might cause some disruption in the long run if the Federal Reserve raises interest rates (which it turns out (which will be passed sooner rather than later), it tells me that this is a budget that was designed with national priorities in mind, rather than taking into account what global capital markets or other countries’ central banks might do.
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At the end of September, the Indonesian legislature passed the 2022 state budget, which comes in at around $190 billion. At the time of this writing, a completely finalized and up to date version was not yet available on the Ministry of Finance’s web portal so I’ll be using some figures from the draft budget, which contains only slight differences from the one accepted by the legislature. Like many budgets being passed these days, Indonesia’s is underpinned by an expectation that things will return to a state of semi-normalcy soon, and this is reflected in many of the underlying assumptions.
The most important of these is that GDP expansion will return to about 5% in 2022, which will raise tax benefits to IDR 1. 5 billion (about $106 billion) and help close the deficit. To cover the regular fiscal stimulus measures adopted after the pandemic, Indonesia has run larger-than-usual deficits over the past two years: 6. 14% of GDP in 2020 and around 5. 82% in 2021. By next year, they want to reduce that figure to 4. 85 percent. However, even with positive profit projections, the government estimates it will need 868 trillion rupees ($61. 5 billion) to finance the 2022 deficit, more than double what was desired in 2019.
With low interest rates, a strengthening rupiah, and a narrowing current account deficit, now is as good a time as any to run short-term fiscal deficits in order to consolidate a post-pandemic economic recovery. And this appears to be the conclusion reached by Indonesia’s financial authorities. While their long-term goal is to get the deficit back down to 3 percent of GDP, the 2022 budget calls for slightly more overall spending than 2021. In other words, they are not throttling back on public expenditures and if they have to borrow more to do so, I think that’s something they can live with.
This includes IDR 96 billion for the Ministry of Health, IDR 78 billion for the Ministry of Social Affairs, IDR 134 billion for the Ministry of Defense, and IDR 111 billion for the National Police. Budget allocations for the Ministry of Health and the Ministry of Social Affairs Matters decreased compared to 2021, while the Ministry of Defense and the National Police saw their budgets increase, leading to some criticism. But these pieces don’t tell the whole story, as really significant amounts are transferred directly to local governments or in the form of grants and other non-departmental expenditures.
Taking into account these other movement mechanisms, the Ministry of Finance estimates that spending on health and social assistance accounts for 25 percent of the total 2022 budget. This is down from last year’s peak of 30%, but higher than the pre-pandemic point of 18%. Defence spending, on the other hand, remains at an all-time high, i. e. around 5% of the budget. Looking at spending levels relative to the total budget, adding up movements and subsidies, it’s clear that in 2022 the state intends to continue spending above its previous baseline in the areas hardest hit by the pandemic: health and social assistance. As it begins to taper off in anticipation of things normalizing, it will be attractive to see how much fiscal those slots continue to get in long-term budgets.
The 2022 budget suggests the government is not taking its foot off the gas just yet, although it is hoping that the amount of deficit-financed fiscal stimulus it needs to keep shoveling into the economy will start to decrease. It remains to be seen whether the economy will actually grow at 5 percent and generate the tax revenue they have projected, but policymakers have shown they are willing to take on debt in order to close the gap. And while that could pose some problems down the line if the Federal Reserve raises interest rates (which looks like it may happen sooner rather than later), it indicates to me this is a budget that was designed with domestic priorities in mind, rather than an eye toward what global capital markets or central banks in other countries might do.
At the end of September, the Indonesian parliament approved the state budget for 2022, which amounts to about $190 billion. At the time of writing, a fully finalized and updated edition was not yet available on the Internet from the Ministry of Finance. I will use some figures from the draft budget, which differs only slightly from the one approved by the legislature. Like many budgets approved in those days, Indonesia’s is based on the hope that the scenario will soon return to a semi-normal situation. state, and this is reflected in many underlying assumptions.
The biggest of these is that GDP growth will recover to around 5 percent in 2022, which will boost tax revenue to IDR 1,500 trillion (approximately $106 billion) and help close the deficit. In order to cover the extraordinary fiscal stimulus undertaken during the pandemic, Indonesia has been running larger-than-usual deficits in the last two years: 6.14 percent of GDP in 2020 and an estimated 5.82 percent in 2021. By next year, they want to bring this down to 4.85 percent. Yet even with optimistic revenue projections, the government is estimating it will need IDR 868 trillion ($61.5 billion) to finance the 2022 deficit, more than double what was required in 2019.
James Guild is dedicated to trade, finance and economic progression in Southeast Asia.