JAKARTA: 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.
South-East 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 2,204.4 trillion rupiah (US$165bil) 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 US$350bil infrastructure agenda.
Tax revenue is projected to increase 9.3% to 1,609.4 trillion rupiah next year, leaving a budget deficit of 325.9 trillion 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.” — Bloomberg
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