Indonesia to issue $4.23b additional bonds to cover widening Budget deficit

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JAKARTA (TheInsiderStories) – Indonesia government will issue additional Rp20 trillion ($4.23 billion) of bonds to cover the widening of 2.48 percent as set in the Revised State Budget for 2016 (APBN-P) from 2.15 percent set previously. The amount of deficit was expanded to Rp313.3 trillion at the Revised State Budget from Rp273.2 trillion set earlier.

Finance Minister Bambang Brodjonegoro proposed the Budget revision to the State Budget Committee of the House of Representative (DPR) – a fiscal deficit of 2.48 percent of gross domestic product (GDP) – bigger than the 2.15 percent originally planned.

The government net bonds issuance was also set higher at Rp385 trillion or up from initial plan of Rp327.2 trillion and gross issuance of Rp576 trillion from previously set at Rp556 trillion. The ministry will cover the remaining 19 trillion rupiah of the ballooning fiscal gap from the government’s extra cash.

The government proposed to cut the state revenues target of Rp88 trillion when submitting the draft Revised State Budget 2016 Changes to the Budget Committee of the House of Representatives (DPR). The cut was made due to the drop in world oil prices.

Based on the main points of the Draft 2016 State Budget submitted by the government, the revenues were set at Rp1,734.5 trillion, which is Rp88 trillion lower from the previous target of Rp1,822.5 trillion. The decline was due to a decrease of the tax revenues target by Rp19.6 trillion to Rp1,527.1 trillion from Rp1546.7 trillion and reduction targets of non-tax revenues (non-tax) amounted to Rp 68.4 trillion to Rp205.4 trillion from Rp273.8 trillion set earlier.

Finance Minister Bambang PS Brodjonegoro said, it proposes changes in macro assumptions such as the oil price assumption  (Indonesian Crude Price, or ICP), which was set at US$35 per barrel from US$50 bpd earlier, oil lifting from 830,000 barrels per day to 810,000 barrels per day, and gas lifting of 1,155 thousand barrels per day to 1,115 thousand barrels per day.

Bambang said, the realization of the ICP from January to April stood at average US$31.95 per barrel.

He said the ICP estimation is quite moderate as the ICPO is now hovering at US$ 50 per barrel. The US begins to enter the summer, and this lowers the oil demand before rising again ahead of the winter season. In addition, for the supply of oil, OPEC also never cuts production, Iran also has entered the global oil market. Therefore, there is an ample supply of oil, but the demand is not very strong,” he said during a working meeting at the Parliament Building, Jakarta, on Thursday.

The Former Head of the Fiscal Policy said, assuming a decrease in ICP and oil lifting impact on the income tax (VAT) of oil and gas declined by Rp17.1 trillion to Rp24,3 trillion from Rp41.4 trillion and non-tax revenues of oil and gas declined by Rp50.2 trillion to Rp28.4 from Rp78.6 trillion.

Nevertheless, he said, the decline in State Revenue target is not too large because of the increase in Non-Oil & Gas Income targets for Rp103.7 trillion.

“That’s because there are tax amnesty policy. Now if the target reduction of VAT (value added tax) Rp97.5 trillion, it is still a bit difficult because the level of restitution is large. Through the proposed tax amnesty policy, we hope we can provide tax restitution again,” he said.

The government’s target for revenues also has an impact on reducing the government spending, especially spending of ministries/government agencies (K/L) amounting to Rp50 trillion from Rp784.1 trillion to Rp743.5 trillion. Transfer to the region was also trimmed to Rp11.9 trillion due to a decrease in profit sharing fund (DBH) of Rp 4.7 trillion and Rp 8.3 trillion special transfer funds.

He said with the widening of deficit target, the government needs additional financing of Rp40.2 trillion.

Bambang said that almost all macro assumptions in the 2016 State Budget was revised downwards by the government, except for economic growth and interest rate of Treasury Bills (SPN), each of which is remained at 5.3% and 5.5% respectively, annual inflation was set at 4 percent from 4.7 percent and the projection of the rupiah against the US dollar was set at Rp13,900 per USD compared to Rp13,500 per USD set earlier.

On the same occasion, Deputy Governor of Bank Indonesia Perry Warjiyo proposed three changes in macro assumptions in 2016 Revised State Budget, namely economic growth, the rupiah exchange rate, and inflation. The monetary authority is projecting 2016 economic growth in the range of 5 – 5.4 percent.

“The projection is in line with the government proposal presented by the Minister of Finance at 5.3%,” he said.

Perry said, this year’s economic growth will be driven by an acceleration of government capital expenditures. Private investment so far is limited, but there is strong demand both from domestic and abroad.

“BI forecast economic growth of the second quarter of 2016 improved by optimizing the fiscal stimulus through the acceleration of infrastructure projects, maintaining consumption, subdued inflation, and expectations of an increase revenues. The accelerate of the implementation of the policy package and the investment climate is expected to boost economic growth.” he said.

Perry projected rupiah in a range of US$13.500-US$13.800 per USD. He said in recent months, the rupiah exchange rate has fairly stabilized, despite there are a number of risks which could increase pressure on the rupiah, mainly on concerns of the Fed rake hike in June or July.

For inflation, Perry said the central bank has the same view with the government. By looking at the actual rate of inflation of 0.4% and an annual 3.3%, the BI rate, the inflation this year is expected to at 4 percent. He said the inflationary pressure was due to the limited demand and can be met by the existing production capacity. “Expectations of demand is also still under control. Therefore, the pressure of the inflation rate eases,” he said.

The government also plans to inject capital of Rp 53.98 trillion ($3.94 billion) into 24 state firms this year, pending approval of the Parliament.

The capital injection as revealed by the government which on Thursday (02/06), mentioned a plan for capital injections into Wijaya Karya, Jasa Marga, Krakatau Steel and Pembangunan Perumahan and Perusahaan Listrik Negara, among others.

Last year, parliament blocked a government plan to inject capital of Rp 40.43 trillion into state owned companies in 2016. (*)

 

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Source: The Insiderstories
Indonesia to issue .23b additional bonds to cover widening Budget deficit

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