Q1 2024 INDONESIA ECONOMIC REPORT
Gross Domestic Product
Indonesia’s economic growth is increasing massively amidst the weak global economy and financial market turmoil putting heavy pressure. In Q1 2024, the economy grew 5,11% (year on year). The main contributor to its growth was strong demand aggregate and budget support as a shock absorber decreasing unemployment rate (Cabinet Secretariat of Republic Indonesia 2024). During the first quarter of 2024, the provincial group in Java Island still showed its spatial influence in the Indonesian economy by recording a role of 57.70 percent despite experiencing a slowdown in growth of 4.84 percent compared to the first quarter of 2023 (year on year) (BPS 2024).
Developments in Government Finances and Fiscal 2014:Q3
The latest report on budget absorption released by the Ministry of Finance shows that in quarter II, January-June 2014, expenditure on fuel subsidies reached a staggering IDR 100.7 trillion (43.9% of the 2014 revised state budget allocation ceiling), and a drastic increase from IDR 20.0 trillion which was level of expenditure registered during the same period in quarter I-2014. Besides, the government and the national assembly reached an agreement that reduced the volume of subsidized fuel from 48 million kiloliters to 46 million kiloliters. Consequently, the government faces the risk of dealing with limited fiscal capacity to undertake development programs. Doubtless, unless there is change in fuel subsidies there is little doubt that the level of fuel subsidies will not be sufficient until the end of the year.
The decline in economic growth has had adverse impact on tax revenues. Indonesian economic growth was 5.12% (y-o-y) in quarter II-2014, which is lower than the assumption of 5.5% that underpinned the revised annual budget for 2014. Consequently, tax revenues declined as well.
Developments in Government Finances and Fiscal 2014:Q2
Developments of various macroeconomic indicators show marked deviation from assumptions which were used in formulating State Budget (APBN) 2014. This is indeed is the main reason that compelled the government to submit the Revised State Budget Plan (RAPBNP) 2014, as an attempt to ensure the implementation of APBN 2014. Without making necessary adjustments, there was big chance that government expenditure could have easily have gone beyond the maximum budgetary deficit limit of 3% of GDP, which is stipulated under the law. Moreover, it is highly likely that economic growth and lifting of oil and gas for the fiscal year will be far lower predictions, while government expenditure is projected to increase sharply as a direct consequence of rising energy subsidies and still unabated depreciation of rupiah. That said, it is worth noting that macroeconomic assumptions for the annual budget merely serve as guidance in formulating state budget, rather than fixed targets which the government must achieve.