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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

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