Indonesia
– Budget 2016
Executive
Summary :-
- Indonesia’s 2016 budget shows continued domestic optimism
amidst global economic uncertainties. The economic growth target has been
adjusted downward due to the adverse external environment but it remains
optimistic about the country’s overall growth potential.
- China’s economic slowdown; lower commodity prices; the increase in currency and
financial market volatility; and higher external borrowing costs are factors
that pose considerable risks to Indonesia’s economy.
- Meanwhile, the reallocation of fiscal resources from energy subsidy to
infrastructure, health and social assistance programmes is expected to support
growth in 2016.
- The
2016 budget also marks a significant rise in the central government’s transfers
to local governments, which shows political commitment to push further the
process of fiscal decentralization.
- Going forward, the government needs to focus on achieving budget optimization
through improved revenue collection and more effective budget execution;
refining spending quality; and finally, empowering local government towards
effective use of greater regional and village funds.
Introduction
:-
The Indonesian Parliament has approved the 2016
budget, which was prepared entirely by President Joko “Jokowi” Widodo’s
administration. Concern about declining growth since the end of the commodity
boom in 2011 has prompted the government to increase public spending in order
to maintain growth in the coming year. The new budget sets its economic growth
target at 5.3 percent in 2016, up from 4.7 percent in 2015, which was the
lowest level in a decade.
Given that exports and investments are expected to remain subdued
due to the weak global economy, public sector spending is expected to be the
main driver of growth in the short term. Jokowi has commenced the construction
of several key infrastructure projects, such as the building of roads, ports,
dams, and power plants, across the archipelago. Moreover, to attract
investments into the country, the government has introduced a series of economic
packages aimed at cutting down the costs of doing business and at improving the
business climate.
Amidst continued global
uncertainties and the weakened domestic economy, 2016 will be a challenging
year for Indonesia. Last year, public spending failed to act as a growth
catalyst. This year, however, the expectation that the public sector will
deliver the needed boost to the economy is higher.
Budget
Assumptions & Composition :-
On October 30th 2015, the
government, represented by the Finance Minister, and the House of
Representatives (DPR) Commission XI overseeing the State Budget, reached
agreement on the overall composition of the 2016 state budget.
The 2016 budget had been
prepared with several underlying assumptions, including 5.3 percent economic
growth, 4.7 percent inflation rate, and 5.5 percent three-month treasury bills
rate. It is worth noting that the growth rate target was adjusted downward in
response to the adverse external environment.
In addition, the government and the parliament agreed to assume a weaker
rupiah-US dollar exchange rate, i.e. Rp 13,900 per dollar for 2016, weaker than
the initial target of Rp 13,400 per dollar stated in the August 2015 draft.
Indonesia’s
Budget Assumptions 2014, 2015 & 2016