Finance Minister Sri Mulyani reported that the performance of the State Budget until July 2024 recorded a deficit of IDR 93.4 trillion. This realization is equivalent to 0.41 percent of the gross domestic product (GDP).
This deficit figure is widening from the deficit in June 2024 which was recorded at IDR 77.3 trillion. The deficit in the state budget occurred because state revenues were smaller than state spending.
Even though the deficit continues to rise, the Minister of Finance claims that the management of the State Budget is still running well.
“Our deficit is IDR 93.4 trillion. If we look at the APBN, the deficit, the target posture is IDR 522.83 trillion. This is the seventh month, it is still relatively good, which is 0.41 percent of GDP. Our deficit (target) in the APBN is 2.29 percent of GDP, so it is still relatively on track,” said Minister of Finance Sri Mulyani in a press conference “Our APBN” at the Ministry of Finance Building, Jakarta, Tuesday (13/8).
The Minister of Finance explained that state revenues until July reached Rp1,545.4 trillion or 55.1 percent of the target set in the State Budget this year. This state revenue achievement fell 4.3 percent from the same period last year. Even so, the decline in state revenues was a better contraction compared to last month which was corrected by seven percent.
Sri Mulyani said that state spending until the end of July 2024 was reported to have reached Rp1,638.8 trillion or 49.3 percent of the budget ceiling. She explained that the growth of government spending until the seventh month of this year was consistently high, with spending in July increasing 12.2 percent from the same period last year.
Although the state treasury is experiencing a widening deficit, there is still a primary balance of Rp179.3 trillion. The primary balance of the APBN is the difference between total state revenues and state spending excluding debt interest payments.
Global Economic Conditions
On the same occasion, the former Managing Director of the World Bank explained various external factors that affect the performance of the APBN, including the weakening of the economies of two large countries, namely the United States and China, as well as geopolitical factors.
He explained that based on poor labor data and expectations of a decrease in the Fed Fund Rate (FFR) in Uncle Sam's country which did not occur, the country's economy is expected to experience… “hard landing”.
“This growth is expected by the US central bank to weaken but have a soft landing. However, with the data that has emerged, where the labor market is rather soft, they are worried that there will be a hard landing. This is what happened last week, which explains the quite large volatility in the US economy that has an impact on the whole world,” he explained.
Sri Mulyani said that China's economy in the second quarter of 2024 also weakened to 4.7 percent, partly due to the crisis in its property sector. This was also accompanied by global conditions that did not support their export products, because many countries had started to impose high tariffs on imported goods from China. The result was excessive production that was not absorbed by the market, she said.
This global uncertainty, continued the Minister of Finance, was exacerbated by the Ukraine-Russia war, as well as the still volatile conditions in the Middle East.
“This all illustrates that in 2024, both the political, military, security constellations and from the economic side, everything is in a direction and dynamics that are highly tense, and this will certainly affect the performance of the global economy. That's why the global economy in 2024 is expected to still weaken, and global trade and investment because now fragmented world, and there are many entry barriers through various trade wars which will definitely affect the trade and investment side which will then have an impact on global growth,” he explained.
“We also use the APBN, but the APBN is not immune, it's not that it is not affected by the situation, it is definitely affected. However, we will continue to try as a credible, sustainable, and effective instrument to become shock absorberbumper, become country siclical,” he added.
Bank Permata economist Josua Pardede said the decline in state revenues resulting in a deficit was due to contracted revenues in various sectors. Josua explained that there were several sectors that still contributed well to state revenues, such as income tax (PPh), which was still growing well. However, other sectors such as mining and processing were corrected, he continued.
In addition, he assessed that government spending last year was not as massive as this year. Moreover, he continued, in 2024 there will be a presidential and vice presidential election which will cause government spending to increase significantly.
“So this year's deficit will tend to increase compared to last year's deficit which was only less than two percent,” said Josua.
Although the deficit is widening as previously explained by the Minister of Finance, said Josua, the government will not issue Government Securities (SBN) or government bonds to “patch” the state budget deficit, but will instead use the surplus budget balance (SAL). This, he said, will have a positive impact on Indonesia's debt rating and the strengthening of the rupiah against the US dollar, which is currently below Rp16,000 per USD.
He also estimated that the 2024 APBN deficit would be much higher than the target set by the government at 2.29 percent.
“This illustrates that investors will see our deficit which should or for sure will widen compared to 2023 because spending has increased sharply this year. This means that even though we will see that some of the regional elections are funded by grants, it does not disrupt central government spending. Therefore, perhaps our forecast for the end of this year, the deficit should still be in the range of 2.5-2.6 percent,” he concluded. (gi/uh)
