Indonesia aims to cut spending, budget deficit in 2022

Workers load cantaloupes into a truck at Pasar Induk Kramat Jati wholesale market in Jakarta, Indonesia on Sunday, May 2, 2021. Indonesia could face a challenging road back to fiscal discipline as the government expects to keep spending heavily to support the economy next year. - Bloomberg

JAKARTA, April 29 (Reuters): Indonesia's 2022 state budget could be smaller than this year's as the government looks to cut its budget deficit and taper pandemic-era fiscal support, senior finance ministry officials have announced.

South-East Asia's largest economy relaxed its fiscal rules for three years from 2020 to allow for bigger government spending amid the coronavirus pandemic, but has vowed to bring fiscal deficits back to under a legal limit of 3% of gross domestic product (GDP) starting in 2023.

Finance Minister Sri Mulyani Indrawati told an online forum the government is preparing the 2022 budget within a range of 2,631.8 trillion rupiah to 2,775.3 trillion rupiah (US$182 billion to US$192 billion), with a deficit outlook of 4.51% to 4.85%.

The lower end of that range would be smaller than the 2,750 trillion rupiah Indonesia expects to spend this year. The 2021 budget has an estimated shortfall of 5.7%, while last year's fiscal gap of 6.1% was the biggest in decades.

Fiscal policy office chief Febrio Kacaribu told a separate seminar the 2023 budget will shrink further and the fiscal gap will be reduced to 2.71% to 2.97%.

"We will continue to design spending as an automatic stabiliser component. When the economy is under pressure, we help, but we will scale down once the economy improves so the state budget can remain flexible and we can relatively maintain its sustainability and its health," Sri Mulyani said.

Economists have warned Indonesian policymakers that withdrawing stimulus too soon could disrupt an economic recovery, but officials have argued a return to strict fiscal discipline was good.

Indonesia's economy contracted for the first time in over two decades last year, shrinking by 2.07%, and the government expects a rebound to 4.5% to 5.3% growth this year.

Assuming Indonesia continues to conduct structural reforms and the coronavirus outbreak is under control, it could see growth accelerating to 5.8% next year and 6.1% in 2023, Sri Mulyani said.

She gave an example of the Job Creation law as one of the government's flagship reforms. The contentious law was passed last year to ease investment rules in an attempt to entice bigger foreign investment.

Next year's government spending will be "more balanced" with more allocation for infrastructure and human development programmes, while some social assistance for the vulnerable would be retained, the minister said.

Sri Mulyani also noted an uneven economic recovery across the world could drive global interest rates higher, so authorities would raise domestic retail debt issuance to try to control borrowing costs. - Reuters
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