JAKARTA (The Jakarta Post/ANN): The government’s big-check fiscal stimulus to bolster purchasing power and tourism- and trade-related industries amid the coronavirus (Covid-19) outbreak will reduce state revenue and raise debt levels, economists say. They have called for productive spending to support the economy.
Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah said the planned stimulus packages would “no doubt” increase debt levels and widen the budget deficit, and he called on the government to manage the budget efficiently while providing the much-needed stimulus.
“The government needs to be smart about the stimulus to ensure the fiscal deficit remains below 3 per cent, ” Piter told The Jakarta Post by phone interview on Wednesday.
The government is working to finalise eight measures that will be incorporated in a second stimulus package aimed at easing rules for exports and imports, as supply chains continue to be disrupted by the spread of the coronavirus.
The measure follows the unveiling of a Rp10.3 trillion (US$725 million) stimulus package last week to support consumer spending and tourism.
“The stimulus packages, while needed, will no doubt widen the budget deficit and must be communicated well to the public, ” said Piter, adding that the budget deficit was reasonable amid the current circumstances.
Apart from the stimulus package, Finance Minister Sri Mulyani Indrawati has announced the government will front-load its spending on social welfare and rural development to boost household expenditure.
A large portion of this year’s social spending will be disbursed in the first quarter of this year. The programmes include the Family Hope Programme (PKH), School Operational Assistance (BOS) for elementary and high schools and the noncash food programme, as well as village funds for rural development.
The government collected Rp103.7 trillion in January, down 4.6 per cent from the same month last year. Meanwhile, government spending reached Rp139.8 trillion, down 9.1 per cent compared with the same period last year. It resulted in a budget deficit of Rp 36.1 trillion, 0.21 per cent of gross domestic product (GDP) in January.
The country recorded debt of Rp 4.82 quadrillion in January, a 30.21 per cent debt-to-GDP ratio. The last time Indonesia recorded debt-to-GDP ratio of above 30 per cent was during the 2008 financial crisis at 30.25 per cent.
“Adding more debt is the only way to counter the negative coronavirus effects amid pressure on revenue performance, ” Piter added.
Separately, Fitch Ratings director of sovereign ratings Thomas Rookmaaker said the coronavirus outbreak could cause a short-term deterioration in revenue collection through its effects on economic activity.
"The self-imposed fiscal deficit ceiling of 3 per cent of GDP will limit the government’s capacity to materially relax fiscal policy," Rookmaaker told the Post by email interview.
Rookmaaker said that any deterioration in fiscal metrics as a result of the novel coronavirus would likely be short-lived.
"We forecast a fiscal deficit of 2.2 per cent of GDP in 2020 and expect the debt-to-GDP ratio to rise only marginally in the next few years."
Indonesia’s economy is likely to be affected by the novel coronavirus outbreak mainly through lower commodity export prices and weaker tourism revenues, said Rookmaaker.
"The outbreak could also affect consumer sentiment and the services sector more broadly if the coronavirus were to spread within Indonesia itself," he added. - The Jakarta Post/Asia New Network
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