Indonesia on track for budget deficit of 2.2% of GDP in 2019

INDONESIA - JAKARTA. Indonesia is on track for a budget deficit of 2.2% of gross domestic product (GDP), wider than planned but in line with the government's latest projection, as revenue collection remained weak towards year-end, its finance minister said on Thursday.

Government revenue in Southeast Asia's largest economy have taken a hit as economic growth weakened, exports slumped and oil and gas production missed targets, pressuring the budget deficit.

In January-November, the government reported total income of 1,677.1 trillion rupiah ($119.1 billion), rising just 1% from the corresponding period a year earlier, Finance Minister Sri Mulyani Indrawati told a news conference.

With government spending at 2,048 trillion rupiah in the same period, Indonesia had booked a deficit of 2.29% of GDP in the fiscal year as of November.

"This will narrow in December, likely towards 2.21%-2.22% (of GDP)," Indrawati told a news conference.

The government's latest estimate for the deficit was the higher end of a 2%-2.2% of GDP outlook range. Its initial plan was to keep the deficit at 1.84%.

Indrawati has been criticised by some market players for keeping fiscal policy too conservative and not allowing the deficit to widen further, despite a slowing economy.

Indonesia's economic growth is seen at 5.05%-5.06% in 2019, Suahasil Nazara, vice finance minister, told the same news conference. This pace is weaker than 2018's 5.17% and would mark the first slowdown in four years.

The 2019 Indonesian budget was set under the assumption that GDP would expand 5.3%.

Indrawati said global uncertainty, stemming from Brexit and the U.S.-China trade war, had hurt business confidence and household consumption.

"When things are uncertain, consumption is withheld, money saved and investment delayed. Decisions to hold back on things weaken the economy," she said.

Corporate tax payments by mining and some manufacturing companies continued to shrink, reflecting tougher business conditions.

The government has promised it would not withhold productive spending to control the deficit, though there were some efficiency cuts on non-urgent allocations.

Still, as of November, the government had only spent 63% of its capital expenditure plans, amounting to 119.5 trillion rupiah, based on Indrawati's presentation.

Indonesia has raised enough funds from the bond market and loans to cover for the 2019 deficit and there is no plan to raise more, officials said.