Indonesia’s fiscal discipline maintained under Budget 2019
KUCHING: RAM Ratings Services Bhd (RAM) views Indonesia’s fiscal discipline and economic resilience will be maintained, following the recent presentation of the Republic’s 2019 budget.
These factors continue to support the country’s global-scale rating gBBB2(pi)/gP2(pi) which is on a stable outlook.
“Indonesia’s narrower budgeted fiscal deficit of 1.8 per cent of GDP in 2019 underscores the government’s adherence to its budgetary rule of capping the fiscal deficit below 3.0 per cent of GDP and higher oil and gas (O&G)-related earnings,” it said in a statement yesterday.
“Nevertheless, this budgetary target will face some challenges as political pressures intensify in the lead up to elections.
“Meanwhile, granular improvements to Indonesia’s growth and fiscal profiles are reflected in the positive outlook of the country’s respective seaAA3 (pi)/seaP1(pi) and AA3(pi)/P1(pi) Asean and Malaysia national-scale sovereign ratings.”
RAM said Indonesia’s budgeted 2019 fiscal revenues – which at 13.3 per cent of GDP are lower than that of most of its Asean peers – would see a higher contribution from O&G revenues following elevated global energy prices.
“The uptick in these revenues are projected to offset energy subsidy expenditure,” it added.
“However, it is uncertain whether this offset adequately accounts for robust domestic energy demand growth and cross-subsidies arising from Perusahaan Listrik Negara, Indonesia’s highly indebt- ed national power producer.”
Elsewhere, RAM said the government expects relatively marginal growth in non-O&G income tax revenue in 2019. While potential outperformance could be seen from this revenue source, it also underscores the Government’s intention to maintain various corporate tax incentives.
This contrasts with the sizeable value-added tax revenue growth of 20.9 per cent projected for 2019, which may be difficult to achieve without a change in rates or an acceleration in economic activity.
“Budgeted fiscal expenditure is calculated to climb 9.9 per cent to 2.47 quadrillion rupiah in 2019 – the fastest increase in four years. This is largely attributed to the expansion in energy subsidies and a rise in social assistance.
“Meanwhile, infrastructure spending growth is budgeted to be slower at 2.5 per cent in 2019, suggesting that the Government has taken cognisance of the country’s constraints in rolling out largescale infrastructure projects.
“Should Indonesia’s fiscal space markedly decrease in 1H19, RAM expects the government to reschedule budgeted capital spending such that it continues to adhere to its fiscal rule.
“That said, infrastructure development remains a key policy agenda leading up to elections, and recent legislation has provided for various avenues for the implementation of large projects via state-owned enterprises or public-private partnership agreements.”