A. Developments in the Fiscal
The economic growth in quarter II-2013 stood at 5.8% (yoy), was lower than 6.3% posted in quarter II- 2012. The slowdown of Indonesian economic growth had adverse effect on low state revenues. The realization of state revenue by 31 August 2013 was IDR 844.9 trillion, which was higher than IDR 798.36 trillion posted during the same period in 2012. However, state revenues recorded in August 2013 of 56.3% of the target set in the Revised State Budget 2013 (APBN-P 2013), is lower than the achievement of 58.7% of the Revised State Budget 2012 (APBN-P 2012).
In a similar development, realized government expenditure reached IDR 945.8 trillion, which represents 54.8% of the APBN-P 2013, and is higher than IDR 832,824 trillion (53.8%) of the target for the APBN-P 2012. That said, realization of capital expenditure, which by August 2013 had reached 31.4%, is still low as it represents just 31.4% of total budget allocation. Meanwhile, the realization of fuel subsidies had reached 66.6% of budget allocation, while realization of debt servicing which stood at IDR 20 trillion had surpassed budget allocation of IDR 15.8 billion, which represents 127.2% of the target set in APBN-P 2013.
Table 1: Revised State Budget 2013 and State Budget Plan 2014
The current macroeconomic instability threatens to undermine efforts to achieve indicators of macroeconomic assumptions in State Budget Plan 2014
Source: Ministry of Finance (2013)
In the national speech conveyed on 16 August 2013, the President underscored highlights of the position to underpin the RAPBN 2014. Some macroeconomic assumptions in the RAPBN 2014, are considered too overly optimistic , given the current economic condition. With that in mind, the government must work very hard to achieve the economic growth target of 6.4% ; maintain inflation level at 4.5% and exchange rate of IDR 9 750 per USD.
Table 2 : Developments in Central Government Expenditure, 2013-2014 (IDR Trillion)
Depreciation of rupiah has the potential to lead to a surge in the government expenditure allocation on subsidies and debt servicing in State Budget Plan 2014
Source: Ministry of Finance (2013)
Expenditure on subsidies takes up the largest proportion of the RAPBN 2014, amounting to IDR 336.2 trillion, which represents 27% of central government expenditure. Moreover, the amount is expected to rise as result of deepening depreciation of Rupiah which impacts on fuel prices. Besides, the impact of the depreciation of Rupiah has another implication, which is the soaring of budget allocation for the payment of interest on foreign debt. To that end, the fiscal condition will continue to worsen. Meanwhile, capital expenditure in the RAPBN 2014, shows an increase of 6% compared with the APBN 2013. Nonetheless, the increase still pales markedly to the 16% increase in expenditure on employees. On the contrary, expenditure on social assistance, though shows a decrease of 48 %, is still susceptible to exploitation and manipulation by political interests in the run up to the 2014 general elections.
Table 3: Internal Tax revenues for 1 January- 31 August 2013 period (IDR Billions)
Despite the fact that tax revenues registered a nominal increase of 7.01% (yoy) by 31 August 2013 compared with the same period in 2012, the realization of state revenues to APBN-P’s target showed a decrease of 4.84%.
Source: Directorate General Of Taxes Report (August 2013)
Tax revenues (excluding excise revenues) in 2013 as by 31 August, registered a 7.01% increase in nominal terms, compared with the same period in 2012. However, the revenue realization as per 31 August 2013 in percentage terms (that is tax revenue realization as a percentage of the tax revenue target) decreased by 4.84% compared with the same period in 2012. In nominal terms, income tax on non oil and gas, value added tax, and luxury goods sales tax, and other taxes recorded an increase compared with the same period in the previous year. Tax revenues which registered a decrease include tax on land and building (69.87%) , and income tax on oil and gas (3.55%).
Table 4: Budget deficit in the Revised State Budget 2013 and State Budget Plan 2014 (in IDR Trillion)
The government set the target of reducing the budget deficit to 1.49% of GDP in 2014
Source: Ministry of Finance (2013)
In 2014, the Indonesian government must work very hard if it is to reduce the budget deficit to the target of 1.49% of GDP as set in the State Budget Plan 2014. The government has set the target of raising government revenues by 10.69% from IDR 1,502 trillion to IDR 1662.5 trillion. In addition, government expenditure is set to experience an increase of 5.24% compared with revised annual budget 2013 to IDR 1,816.7 trillion as set in the annual budget draft, 2014. In the annual budget draft, 2014, central government expenditure will register an increase of 2.8%, and the total amount transferred from the central government to sub national governments will experience a 10.77% increase compared with the Revised State Budget 2013.
Nonetheless, the ebullient government optimism that is reflected in the target set to reduce the budget deficit in the State Budget Plan 2014 will no doubt encounter serious challenge given the fact that the ratio of realized government revenues as a percentage of the target set in Revised Annual Budget 2013 posted a decrease. That coupled with the possibility of an upsurge in government expenditure as a result of a significant depreciation of Rupiah. President SBY government has over the last few years faced a lot of pressure in fiscal domain, due largely to ongoing macroeconomic instability.
B. Developments in Government Debt and Foreign Debt
The tradable government securities (SBN) outstanding, traded as per August 2013 was IDR 1,535.47 trillion, which represents an increase of IDR 33.86 trillion compared with IDR 1,501.62 trillion recorded in July 2013.
The composition of SBN outstanding as per August 2013, was largely dominated by fixed rate bonds, with a value of IDR 685.9 trillion. Meanwhile, the value of treasury bills by August 2013, was IDR 32.15 trillion, which represents an increase of IDR 3.56 trillion compared with IDR 29 trillion in the previous month. Meanwhile, the variable rate bond remained unchanged at IDR 122.754 trillion between January 2013 and August 2013.
Figure 10 : Composition of Government Securities January 2011 – August 2013
Government securities continues the upward trend
Source: Ministry of Finance and CEIC (2013)
With respect to foreign ownership of government securities, registered an increase of IDR 10.81 trillion from the beginning of the year to August 2013, rising from IDR 273.2 trillion to IDR 284.01 trillion. Meanwhile, foreign ownership of shares recorded an increase of IDR 76.33 trillion during the period between the beginning of the year and July 2013, posting total value of IDR 1693.2 trillion. Nonetheless, total foreign ownership of government debt securities, showed a decrease of IDR 18.93 trillion since May 2013.
Foreign ownership of equity, government bonds, and Bank Indonesia certificates in general shows a downward trend. From May to July 2013, foreign ownership of equity has decreased by USD 21 Billion to USD 162 Billion, while foreign ownership of bonds experienced a decrease of USD 4.21 Billion to USD 26.8 Billion in August 2013. Since April 2013, foreign ownership of Bank Indonesia certificates decreased by USD 80.9 million to USD 88.77 million in August 2013. The decrease in foreign ownership is attributable to the implementation of the 6 months holding period for Bank Indonesia certificates by Bank Indonesia, as well as the impact of the Federal Reserve Bank (US)’s policy that induced investors to transfer their investments to US economy, which contributed to weakening the Rupiah and a decrease in foreign ownership of securities in Indonesia.
Figure 11: Foreign Ownership of Securities, March 2010 – August 2013
Foreign Onweship continues to show a downward trend
Source: Ministry of Finance and CEIC, 2013
Capital outflow which ensued as a result of a decrease in foreign ownership of Indonesian securities, also contributed to the reduction in the level of foreign reserves. This is attributable to the fact that short term investors, hot money, in such securities as shares, Certificates of Bank Indonesia and Bonds, increased their demand for USD, which undermined Rupiah in the process. Consequently, the decrease of foreign exchange reserves can be used to stabilize Rupiah.
Figure 12: Debt Service Ratio, Indonesia 2004:Q1 – 2013:Q2
Debt Service Ratio continues to show an upward trend
Source: Bank Indonesia and CEIC (2013)
Debt Service Ratio (DSR), which is an indicator that shows the ratio of payment of principal and interest on debt to export revenue of a given country. In quarter II-2013, Indonesia DSR was 41.4%. The ratio shows an upward trend compared with the same period in the past years. This is a critical and dangerous position if Rupiah continues to depreciate because of an increasingly larger debt burden.
In general, total Indonesian external debt shows an upward trend, especially private sector foreign debt. In June 2013, total Indonesian foreign debt was USD 257 billion, which represents a decrease of USD 0.54 billion compared with level for the previous month, but an increase of USD 6.48 Billion over the level recorded at the beginning of 2013, and an increase of USD 19.06 Billion compared with the level in June 2012.
Figure 13 : Total Foreign Debt, Indonesia
Total Private sector foreign Debt shows an upward trend
Source: Bank Indonesia and CEIC (2013)
In May 2012, Indonesia private sector had external debt of USD 118.48 Billion, which is higher than government foreign debt since May 2012. In June 2013, the level of private foreign debt was USD 133.98 Billion, which is USD 19.97 billion higher than USD 114.01 billion of government external debt in June 2013 , and larger by USD 9.9 billion of government and central bank debt for June 2013 of USD 124 Billion.
The level of private external debt, with short term tenor by original maturity is debt that is calculated right from the time the obligation takes effect until maturity. In June 2013, the level of private sector foreign debt, with short term tenor by original maturity was USD 39.58 Billion, which represents an increase of USD 3.32 billion compared with the level in May 2013, and an increase by USD 2.49 Billion compared with the level in June 2012. The level of private external debt, with short term tenor by remaining maturity is the position of debt, which is calculated by summing up the position of short term debt in accordance with original maturity and the position of long term debt which will fall due in a period of one year and beyond based on the month when the report is made. In June 2013, private external debt by remaining maturity was USD 40.48 billion, which is an increase of USD 997 million compared withe the level in May 2013 and an increase of USD 2.102 billion compared with the level in June 2012.