A. Development in Fiscal

In Q1 2013, Indonesia posted economic growth of 6.02%, which is lower than 6.29%, registered in the same period previous year. Slower economic growth is by and large, attributable to low utilization/absorption rate of the national budget, which in quarter I, was under 10 percent. In addition, the decrease in the performance of trade balance caused by falling commodity prices also contributed to lower than expected economic growth in the first quarter. To that end, it is not surprising that such conditions culminated in the revision of macroeconomic assumptions the 2013 state budget.

 

Table 3: Revised State Budget Plan 2013

Government proposal to raise fuel prices will induce higher inflation in the revised state budget plan

Indicator	State Budget (APBN) 2013	Revised State Budget Plan (RAPBN-P) 2013
Economic Growth (%)	6.8	6.3
Inflation (YoY, %)	4.9	7.2
Exchange Rate (IDR/USD)	9.300	9.600
Government Bonds 3 month tenor (%)	5	5
Crude Petroluem Oil (USD/barrel)	100	108
Lifting Petroleum (thousands barrels per day)	900	840
Lifting natural Gas (thousands barrels per day)	1,360	1,240

Source: Ministry of Finance (2013)

 

The RAPBN-P 2013 contains revised macroeconomic assumptions, which include economic growth that is revised down wards from 6.8% to 6.3%, which is attributable to uncertainty that continues to characterize the global economy. The intension of the government to raise prices of subsidized fuels led to an upward revision of the assumption of inflation from 4.9% to 7.2%. Indonesia Crude Price (ICP) was revised upward from USD 100 to USD 108, lifting of petroleum oil was revised dow wards from 900,000 barrels per day to 840,000 barrels per day, and lifting of natural gas was revised down ward from 1.36 million barrels to 1.24 million barrels per day.

 

Consumption of subsidized fuel for March 2013 had surpassed the quota set. To that end, it is expected that the quota set in the national budget for over all consumption of subdidized fuels will reach 48.5 million kiloliters, a quantity that is far higher than 46 milion kiloliters set in the 2013 national budget. This is the main reason that compelled the government to implement the policy which once coming into force will restrict the use of subsidized fuels. On the other hand, there is need the reduction of expenditure on subsidized fuels to ensure that the government has healthy and sound fiscal space.

 

In the 2013 state budget, the allocation budget for subsidized fuel expenditure reached IDR 193.8 trillion. This is a staggering amount of expenditure, which is more than half of all budget allocations for all various subsidies. The central government spent 16.7% of its expenditure on fuel subsidies. Moreover, if combined with subsidies on electricity, 23.8% of government expenditure was spent on subsidies. Doubtless, budget allocation for subdized fuels will be higher that budget allocations because fuel consumption will surpass the quota set in the national budget. As late as early June, the government and DPR were still locked in deliberations on the revised state budget plan that relates to proposed raise in prices of subsidized energy fuels.

 

For many sources, current budget allocation for subsidized fuels is too large and poses a danger to sustainable fiscal. In addition, the staggering amount spent on subsidized fuels has evoked sentiments of injustice in the expenditure of the national budget. To illustrate the point, government expenditure on subsidized fuels, which has been decried for its inefficacy, and poor targeting, is higher than government expenditure on capital goods and social contribution which received budget allocation of just IDR 184.4 trillion and IDR 73.6 Trillion in 2013 national budget, respectively. As a comparison, budget allocation on subsidized fuels is equivalent to the construction of 43 Suramadu bidges, 15 MRT lines in Jakarta, or 4,845 kilometers of road tolls. Moreover, higher consumption is likely to generate higher budget deficit, which the government will be compelled to finance by issuing government bonds.

 

Figure 10: Central Government Expenditure

Expenditure on Energy Subsidies is Projected to Increase in the RAPBN-P 2013

 Source: Ministry of Finance (2013)

 

In relation to the proposal to raise fuel prices, the government proposes compensation scheme for the poor. The new scheme, which bears the name, temporary direct assistance for community (BLSM) which is not fundamentally different from the temporary unconditional cash transfer (BLT) was intended to distributed to the poor for the same purpose in the past. Despite fears that the policy may be prone to abuse in furtherance of political interests, the government seems unwavered in its decision to implement the compensation program.

 

Based on program plans, BLSM will benefit poor households, by mitigating the adverse impact of the increase in fuel energy prices on their consumption levels. Budget allocation for BLSM in the revised national budget plan 2013, is put at IDR 11.6 trillion, which will be distributed to 15.5 milion households that are categorized as very poor (RTSM) within each receiving IDR150,000 per month for the duration of five months. However, House of Representative – Budget Committee decided to distribute BLSM amounted for IDR 9.3 trillion, so that every RSTM is going to receive IDR 150,000 per month for four months.

 

Table 4: Domestic Tax Revenues for 1 January to 30 April 2013 (in IDR Billion)

Domestic tax revenues posted an increase of 9.04% during 1 January- 30 April 2013

Type of Taxes	APBN 2013	Realization (January – April)			% of APBN 2013
		2013	2012	Growth (%)
Non Oil and Gas Income Tax	513,508.98	142,971.73	139,976.17	27.84	27.84
Oil and Gas Income Tax	71,381.45	17,715.94	14,387.01	23.14	24.82
GST and Sales Tax on Luxury Goods	423,708.25	106,642.75	90,268.58	18.14	25.17
Land and Building Tax	27,343.81	443.37	1,081.29	-59	1.62
Other Taxes	6,342.74	1,552.21	1,279.12	21.35	24.47
T O T A L	1,042,285.22	269,325.99	246,992.16	9.04	25.84

Source: Directorate General of Taxation (2013)

 

Tax revenues have for long become a reliable source of government revenues. However, tax revenues for 2013 are likely to miss the target of IDR 1,193 trillion set in the 2013 state budget to IDR 1,139.3 trillion in the revised state budget plan for 2013. The decrease in tax revenues is in part attributable to slow export performance and weakening domestic economy, both of which are traceable to uncertainty that continue to bedevil the global economy.

 

Table 4 depicts trajectory of tax revenues in the domestic economy by April 2013, outside customs. In comparison with the same period of 2012, tax revenues in the domestic economy increased by 9.04% during 1 January 2013 to 30 April 2013, period. In general, income tax revenues from oil and non oil sources, valued added tax and luxury goods sales tax, and other taxes registered an increase during the period, land and   construction tax (PBB) is the only tax, which posted a decrease of 59%.

 

To that end, serious attention need to be paid to indication of a decrease in government revenue, which is compounded by the widening gap between the quota of subisized fuel set in the national budget and consumption of subsidized fuels. As a remedial measure to avert a widening budget deficit,   the revision of the 2013 national budget was deemed imperative. In the revised national budget for 2013, the government proposed deficit target of 2.48% of GDP, which is higher than 1.65% of GDP, initially set in 2013 state budget.

 

Table 5: Budget Deficit in APBN 2013 and RAPBN-P 2013 (in IDR Billion)

Budget deficit is projected to reach 2.48% of GDP

ITEMS	APBN 2013	RAPBN-P 2013
SURPLUS / DEFICIT	(153,338.0)	(233,705.0)
% to GDP	(1.65)	(2.48)
DOMESTIC FINANCING	172,792.1	250,574.8
Domestic Bank Financing	14,306.6	34,556.6
Non Bank Financing	158,485.5	216,018.2
FOREIGN FINANCING	(19,454.2)	(16,869.8)
Gross Drawing	45,919.1	43,039.8
Subsidiary Loan	(6,968.3)	(6,699.8)
Amortization	(58,405.0)	(59,209.8)

Source: Ministry of Finance (2013)

 

In the Nota Keuangan dan RAPBN-P 2013, it is predicted that government revenue will decrease by IDR 41,347.7 billion (2.7%). The budget deficit will increase due to a surge in government expenditure to the tune of IDR 39,019.3 billion (2.3%). The widening budget deficit will be financed by IDR 77,782.7 billion in domestic financial resources, which will represent an increase from IDR 172,792.1 billion in the national budget, 2013, to IDR 250,574.8 billion. Meanwhile, net external financing sources will decrease by IDR 2,584.3 billion, from IDR 19,454.2 billion to a deficit of IDR 16,869.8 billion. The decrease will comes as a result of retiring higher level of foreign debt than serving the principal.

 

 

B. Developments in Government Debt

 

Figure 11 : Composition of Government Securities

Fixed rate bonds continue to dominate the composition of government securities

 Source: Bank Indonesia, Ministry of Finance and CEIC (2013)

 

Total value of tradable government securities (SBN) outstanding by 31 May 2013 reached IDR 1,191.22 trillion, which represented an increase of IDR 124.92 trillion, compared tradable SBN outstanding by 30 April 2013 that registered IDR 1,066.30 trillion.

 

The largest composition of SBN outstanding in May 2013 is represented by fixed rate bond, recorded for about IDR 672.39 trilliun. Meanwhile, treasury bills in May 2013 registered for about IDR 22.47 trilliun, reflected an increase compared to the previous month that reached IDR 21.02 trilliun. Meanwhile, the variable rate bond has shown no significant changes from the early 2013 up to May 2013, registered stable value for about IDR 122.75 trilliun.

 

Figure 12 : Foreign Ownership of Securities

There has been an increase in foreign ownership of securities

Source: Bank Indonesia, Ministry of Finance and CEIC (2013)

 

In general, the total value of foreign ownership of securities, in the form of SBN and stock has increased between January and May 2013. Foreign ownership of SBN in January 2013 recorded for about IDR 273.2 trillion, rise to IDR 302.94 trillion in May 2013. Compared to May 2012, the total value of foreign ownership of SBN has increased for IDR 78.44 trillion in May 2013.

 

Regarding to foreign ownership of SBI, the total value reached IDR 1.02 trillion in May 2013, shows a decrease compared to the previous month which registered IDR 1.65 trillion. Similarly, compared to May 2012, the total value of foreign ownership of SBI in May 2013 has decreased, amounted for IDR 0.63 trillion. The reduction is attributable to the impact of the regulation on 6 months holding period issued by Bank Indonesia on 13 May 2011.