By Stefanno Sulaiman, Gayatri Suroyo and Fransiska Nangoy
JAKARTA- Indonesia’s outgoing government submitted a 2025 budget plan to parliament on Friday targeting a narrower deficit than this year, which analysts said signaled Southeast Asia’s largest economy would remain fiscally prudent under its next president.
The budget proposal worth 3,613.1 trillion rupiah ($230 billion), prepared by ministers under outgoing President Joko Widodo and president-elect Prabowo Subianto’s economic team, projects a deficit of 2.53 percent of GDP next year, narrower than this year’s expected 2.7 percent .
Total expenditure would be almost 6 percent higher than the forecast for this year.
“We must continue structural reforms, maintain healthy and credible fiscal policy, and enhance collaboration of fiscal, monetary and finance policy,” Jokowi, as the president is widely known, told parliament.
Investors have been paying close attention to Prabowo’s first budget, concerned that he might abandon strict fiscal rules after hinting in his speeches at an appetite for taking on more debt in order to achieve a GDP growth target of 8 percent.
By law, the government must keep the annual fiscal deficit under 3 percent of GDP, while the outstanding public debt-to-GDP ratio cannot exceed 60 percent . That ratio is currently at 39 percent .
“I think (the proposal) clarifies that the new government would be fiscally prudent, unlike the rumors about increasing the debt-to-GDP ratio to 50 percent in next five years that could translate to (an annual deficit of) over 4 percent to 5 percent of GDP,” said Handy Yunianto, head of fixed income at brokerage MandiriSekuritas.
Handy said the deficit level was “positive for bond investors.”
Economist Ryota Abe at Sumitomo Mitsui Banking Corp said that the plan was roughly as expected but that the market still wants to see what policies Prabowo’s pick for finance minister pursues.
“My specific focus is on how the next president Prabowo will try to accelerate Indonesia’s GDP growth to 8 percent without damaging fiscal policy and investors’ risk appetite,” he said.
Prabowo, who attended the parliamentary session as defense minister, did not respond when asked whether he would change the budget once he takes over from Jokowi in October.
The new budget proposal assumes the economy expands 5.2 percent in 2025, similar to the forecast range for GDP growth this year of 5 percent to 5.2 percent.
Brian Lee, an economist with Maybank Investment Banking Group, said that growth target looked achievable in view of the expansionary plans in the budget and an expected monetary easing.
