JAKARTA, Aug 16 — Indonesia's outgoing government submitted a 2025 budget plan to Parliament today, targeting a narrower deficit than this year, which analysts said signalled Southeast Asia's largest economy would remain fiscally prudent under its next president.
The budget proposal worth 3,613.1 trillion rupiah, prepared by ministers under outgoing President Joko Widodo and President-elect Prabowo Subianto's economic team, projects a deficit of 2.53 per cent of the gross domestic product (GDP) next year, narrower than this year's expected 2.7 per cent.
Total expenditure would be almost six per cent higher than the forecast for this year.
"We must continue structural reforms, maintain healthy and credible fiscal policy, and enhance collaboration of fiscal, monetary, and finance policy," Jokowi, as the president is widely known, told Parliament.
Investors have been paying close attention to Prabowo's first budget, concerned that he might abandon strict fiscal rules after hinting in his speeches at an appetite for taking on more debt to achieve a GDP growth target of eight per cent.
By law, the government must keep the annual fiscal deficit under three per cent of GDP, while the outstanding public debt-to-GDP ratio cannot exceed 60 per cent. That ratio is currently at 39 per cent.
"I think (the proposal) clarifies that the new government would be fiscally prudent, unlike the rumours about increasing the debt-to-GDP ratio to 50 per cent in the next five years that could translate to (an annual deficit of) over four per cent to five per cent of GDP," said brokerage Mandiri Sekuritas' fixed income head Handy Yunianto.
He added that the deficit level was "positive for bond investors."
Sumitomo Mitsui Banking Corp economist Ryota Abe said the plan was roughly as expected but that the market still wants to see what policies Prabowo's pick for finance minister pursues.
"My specific focus is on how the next president Prabowo will try to accelerate Indonesia's GDP growth to eight per cent without damaging fiscal policy and investors' risk appetite," he said.
Prabowo, who attended the Parliamentary session as defence minister, did not respond when asked whether he would change the budget once he takes over from Jokowi in October.
[caption id="attachment_368512" align="aligncenter" width="990"]
Indonesian President-elect Prabowo Subianto (centre left) walks with Indonesian President Joko Widodo (centre right) as they leave the Parliament building after the annual State of the Nation Address, ahead of the country's Independence Day, in Jakarta, Indonesia, on August 16, 2024. — Picture by REUTERS[/caption]
Achievable GDP growth target
The new budget proposal assumes the economy will expand to 5.2 per cent in 2025, similar to the forecast range for GDP growth this year of 5 per cent to 5.2 per cent.
Maybank Investment Banking Group economist Brian Lee said the growth target looked achievable given the expansionary plans in the budget and an expected monetary easing.
Inflation in the proposal was projected at about 2.5 per cent next year, the midpoint of the central bank's target range.
Based on GDP, inflation and other assumptions, the government has projected total revenues of 2,996.9 trillion rupiah next year, up seven per cent from this year's outlook.
The proposal called for a new excise tax on packaged sugary drinks but it did not go into details.
On the spending side, 71 trillion rupiah is allocated to Prabowo's flagship "Free Nutritious Meals" programme, unchanged from previous announcements on the programme.
The programme is set to be implemented in stages, first in regions with high rates of poverty and stunted child growth, according to the proposal submitted to Parliament.
A total of 400.3 trillion rupiah is proposed for infrastructure spending, including for the continued construction of Indonesia's new capital city.
The proposal also calls for reform of the government's energy subsidy policy, moving away from blanket subsidies to targeted distribution to individual beneficiaries.
— Reuters
[caption id="attachment_368515" align="aligncenter" width="1142"]
(from left to right) Indonesian President-elect Prabowo Subianto walks with Indonesian President Joko Widodo as they leave the Parliament building after the annual State of the Nation Address, ahead of the country's Independence Day, in Jakarta, Indonesia, on August 16, 2024. — Picture by REUTERS[/caption]
