Developments in Government Finances

On 23 October 2012, the National Assembly appoved the State Budget (APBN) for 2013. Changes in assumptions used in drawing up the national budget for 2013 compared with those that underpinned the State Budget 2012-Revised are shown here under:

Considering the current economic conditions of the Indonesian economy and developments in the global economy, the assumptions above seem to be too optimistic. Given the high uncertainty that continues to cast a shadow above the global economy, and predictions are pointing to slower economic growth than initially projected, the assumption on Indonesian economic growth in 2013 is too high.

By sector, expenditure on energy subsidies receives most public attention and interest. In the approved national budget for 2013, budget allocation for energy subsidy constitutes the largest item of government expenditure of 27.8 % of the total budget. Second in terms of size the central government expenditure is the proposed expenditure on civil servants (amounting to 21.2%). In descending order, expenditure on capital expenditure follows (17%), goods expenditure (14%), foreign debt serving (9.9%), social expenditure (5.2%) and other expenditure items (4.2%).

It is thus, apparent that the 2013 state budget will not have significant impact on the Indonesian economy. Expenditure on subsidies and government employees takes almost 50 percent of government expendtiture. Out of total of IDR 274.7 trillion to be spent on energy subsidies, IDR 41.4 trillion will be spent on non energy subsidies. The item of energy subsidies is divided further into two, which is IDR 193.8 trillion for gasoline/fuels and energy and IDR 80.9 trillion for electricity.

Based on information that was provided by the Directorate General National Treasury -Ministry of Finance, by 14 November 2012, the disbursment of the revised national budget for 2012 was Rp1,112.1 trillion, which is 71.8% of the total amount (IDR 1,548.3 trillion). Total central government expenditure stood at IDR 717.993 trillion, which is equivalent to 67.1 % of total amount IDR 1, 069.5 trillion, and the transfer of IDR 394.1 trillion to the local governments, which is equivalent to 82.3% of IDR 478.776 trillion of the budget allocation for the purpose.

In light of the assumptions used in formulating the state budget for 2013, is evident that the Indonesian government has high optimistism that 2013 will be better than 2012.

 

 

Developments in Fiscal Policy

In general, the value of Indonesian foreign debt registers an increase in the third quarter 2012 compared with the second quarter. The ratio of foreign debt to GDP increases as a result of both an increase in the volume of debt and depreciation of Rupiah. The total value of Indonesian foreign debt in the third quarter 2012, was USD 243.910 billion, consisting of USD 115.03 billion (government debt) and USD 123.27 billion (private sector debt).

The value of foreign debt for the private sector increased by USD 2,520 million in the third quarter 2012 compared with the same period in the previous year. Meanwhile, the value of foreign debt in the third quarter 2012 registered an increase of USD 2,075 million in the third quarter from USD 112,962million for the same period in 2011.

In light of that, the ratio of total foreign debt to increased from 17% in the second quarter 2012 to 25.7% in the third quarter 2012. That said, it is worth noting that the ratio of government foregn debt to GDP was 12.12 % in October 2012.

The ratio of government debt to GDP shows a downward trend. By October 2012, the level of Government debt was IDR 1,844 trillion or 21.58% of GDP, represented a decrease of 2.7% from the debt ratio of 24.3% recorded in 2011. By the end of 2012, though the level of government debt is expected to continue to rise, the fact that GDP will rise at an ever faster rate, means that the downward trend of ratio of government debt will continue.

 

The value of government securities (SBN) in November 2012 was IDR 1,375,326 billion, which was higher than the level of outstanding government secutities of IDR 1,314,131 billion in June 2012.   Fixed rate bonds contributed the largest percentage, with IDR 624,879 billion. Treasury securities showed a downward trend in October 2012, with a decrease of IDR 25,820 billion from   IDR 8,280 billion registered at the start of the year 2012. Variable rate government bonds also showed a decrease. On the contrary, fixed coupon government bonds showed an upward trend. In October 2012, the value of fixed coupon bonds increased by IDR 26,977 billion from the previous month to reach IDR 619,887 billion, which is an increase of IDR 94,926 billion from the value registered at the start of the year 2012. Shariah bonds as well as foreign currency denominated bonds also registered an increase.

 

The total value of portfolio securities, which consist of government bonds, equity, and bank Indonesia certificates, shows an upward trend. In October 2012, the total value of securities in hands of foregn entities was IDR 1,721.37 trillion, which was an increase of IDR 48.98 trilion from the previous month, but at an increase of IDR 172.16 trilion from the start of 2012. The value also represented an increase of IDR 227.188 trillion from October 2011. The value of foreign ownership of equity stood at IDR 1,470.3 trillion, which was an increase of IDR 41.172 trillion from IDR 1,429.158 trilion posted in the previous month, and an increase of IDR 226.838 trillion from IDR 1,243.492 trilion posted in October 2011. Meanwhile, lately foreign ownership of government bonds though registered a decrease recently, in general shows an upward trend. The value of foreign ownership of government bonds was IDR 250.33 trillion in October 2012, which was an increase of IDR 9.3 trilion from the IDR 14.36 trilion posted at the start of the year 2012, and an increase of IDR 30.55 trilion from October 2011. In the meantime, there is a decrease in foreign ownership of Bank Indonesia certificates (SBI). In October 2012, the value of foreign ownership of SBI was IDR 710 billion, which represented a decrease from IDR 1.540 trillion registered in the previous month , and a decrease of IDR 6.930 trilion posted at the start of the year 2012, and a decrease of IDR 30.2 trilion from the valued posted in October 2011. The main cause of the decrease was the implementation of the six months holding period, which is the minimum period allowed for holders of SBI prior to making transactions with other parties. The regulation, which came in effect on   13 May 2011, initially set the minimum holding period to one month (28 calendar days) but later prolonged to 6 months (182 calendar days).