DEPOK (eNBe Indonesia) – On a speech at the annual hearing with the Parliament (MPR-DPR) on Friday (August 14), in commemoration of Independence Day, President Joko “Jokowi” Widodo said government now focuses on facing the year 2021 as the uncertainty of global and domestic economic will still persist. So the economic recovery program will continue along with the reform in all sectors. The relaxation of budget deficit from 3% over the GDP is still needed while maintaining a prudent policy, credibility, and continuity of the fiscal.
The budget deficit has been expanded to 6.34% over GDP for this year, as the country’s spending for health and economy during the COVID-19 pandemic was growing, while state revenue declines. The COVID-19 pandemic has hardly hit all aspects of life such as social, economic, and financial sector.
So many countries have taken such an ordinary actions, including the fiscal stimulus. Germany allocates fiscal stimulus for 24.8% of GDP, but its economy contracted 11.7% in the second quarter (Q2) of 2020. United States allocates 13.6% of GDP for fiscal stimulus, but its economy contracted 9.5%. China also allocates 6.2% of GDP for fiscal stimulus and its economy grew 3.2% in Q2 this year, after contracting 6.8% in Q1.
For 2021, Jokowi said the state budget policy draft is directed for; First, accelerating the recovery of national economy; Second, boosting the structural reform for improving the productivity, innovation, and economic competitiveness; Third, accelerating the economic transformation to entering the digital era; and Fourth, utilizing and anticipating the demographic change. The fundamental reform, Jokowi said, is also a focus; reform in education, health, social protection, and reform of tax and budget system.
On the state budget draft for 2021, government sets the economic growth at 4.5% to 5.5%, supported by expected growth in domestic consumption and investment. The inflation is maintained at 3%, for supporting the public purchasing power. The rupiah is set at Rp14,600 against the US dollar and the interest rate (10-year government notes) is set at 7.29%. Indonesian crude price (ICP) is set at US$45 per barrel, oil and gas lifting are set at 705,000 barrels and 1.007 million barrels oil equivalent per day (boepd).
On the budget deficit, Jokowi said, it is set at Rp971.2 trillion or 5.5% of GDP for 2021, lower than Rp1,039.2 trillion (6.34% of GDP) for 2020. Budget for health is set at Rp169.7 trillion (6.2% of GDP). Budget for education is set at Rp549.5 trillion (20% of GDP). Budget for infrastructure development is set at Rp414 trillion, budget for food security Rp104.2 trillion, social protection Rp419.3 trillion, and budget for tourism is set at Rp14.4 trillion. Overall, the budget allocation for 2021 is hoped to achieve target of unemployment rate (7.7-9.1%), poverty rate (9.2-9.7%), and human development index (72.78-72.95).
Government also allocates Rp356.5 trillion for the national economic recovery program in 2021, directed to health (Rp25.3 trillion), social protection (middle-low income) Rp110.2 trillion, ministries-institutions-regional governments (Rp136.7 trillion), micro-small-medium segment (UMKM) Rp48.8 trillion, corporate funding (Rp14.9 trillion), and business incentives (Rp20.4 trillion).
Transfer to regional and village funds is allocated at Rp796.3 trillion for 2021. The gini ratio in the village was declining, from 0.316 in 2016 to 0.315 in 2019. The number of poor in the village also declined from 13.96% in 2016 to 12.6% in 2019.
Government also set the state revenue at Rp1,776.4 trillion for 2021 fiscal year, of which tax revenue accounts for Rp1,481.9 trillion and non tax revenue accounts for Rp293.5 trillion. While state spending in 2021 is set at Rp2,747.5 trillion, then the budget deficit is Rp971.2 trillion or 5.5% of GDP.
Government allocates Rp169.1 trillion for funding the investment in 2021. This financing is planned for education sector, empowering MSMEs and Ultra-Micro financing, and accelerating the development of facilities and infrastructure in transportation, housing, and energy security also promoting national export program.
Meanwhile Finance Minister Sri Mulyani Indrawati has revised Indonesian economic growth target in 2020, to minus 0.2-minus 1.1% of GDP, from initial target of 2.3% of GDP. This year, the inflation rate is predicted around 2-4%, interest rate 3-4%, the Rupiah 14,400-14,800 against the US dollar, ICP US$35-40 a barrel, oil lifting 705,000 barrels per day, and gas lifting 992,000 barrels equivalent per day.
Sri Mulyani said fiscal policy through the state budget instrument will continue to play a vital role in the remainder of 2020 to hold the economy from a deeper decline, as well as in 2021 in the context of accelerating economic recovery and strengthening reforms.