Amid an expected decline in state revenues, the government has widened the budget deficit for the 2017 Revised State Budget to 2.92 percent.
The figure, which is far above the target and forecast of the previous increase, raises anxiety because it approaches the maximum limit set by Law No. 17 of 2003, namely 3 percent of gross domestic product (GDP). Breaking this boundary will not only create consequences for the government, but also increase the potential for economic vulnerability, from the fiscal side related to debt burdens, exchange rate risk and investor perspective.
The government itself seems very confident that the realization of the deficit will be far below the pegged figure because naturally the realization of government spending does not reach 100 percent by the end of the fiscal year. Aside from the inability to meet the revenue target, especially taxes, the widening deficit is also caused by the swelling of energy subsidies as the government has delayed subsidized fuel price hikes amid rising crude oil prices.
Another concern is that the growing deficit also swells debt because the deficit is covered by debt. Even if the debt-to-GDP ratio is still safe, the growth of nominal debt is sparking concern. To maintain the growth momentum, the government cannot recklessly cut the deficit, especially in the midst of an uncertain global situation where our domestic economy is not stable. Fiscal stimulus is still needed. The government is also required to set aside money to reduce poverty and inequalities.
The finance minister has worked hard to maintain a balance between stimulus and fiscal sustainability. Maneuvers to boost revenues, including through taxes, are coupled with efforts to curb government spending, cut general allocation funds for the regions and unproductive programs in ministries and institutions.
Since their role is to drive the economy and overcome backwardness, infrastructure projects cannot be slowed down. But the government needs to prioritize projects that have multiplier effects. The government also needs to encourage private or foreign infrastructure projects, to reduce the burden on the state budget.
Preventing fiscal stimulus cuts from affecting economic growth is a challenge for the government.
The sharp scissors of the finance minister are still needed to comb and sharpen efficiency. Each rupiah of additional debt should be used to strengthen the national economy and the purchasing power of the people. Indiscriminate spending or the mismanagement of the state could trigger the signal that Indonesia is on the verge of crisis.
