August 15, 2024
JAKARTA – President Joko “Jokowi” Widodo is scheduled to deliver before the People’s Consultative Assembly on Friday the annual State of the Nation Address as well as the State Budge Address.
During the latter, an annual speech on government finances that serves as guidance for the following year’s state budget, Jokowi plans to pass on the fiscal baton to his successor Prabowo Subianto, who is slated to be sworn in as president in October, while Gibran Rakabuming Raka, Jokowi’s eldest son, is to become the vice president.
The Jokowi administration is planning the 2025 state budget with the president-elect’s spending programs in mind.
The President said on Aug. 5 that the 2025 draft budget should “accommodate all of” his successor’s programs.
Jokowi has also installed two of Prabowo’s close aides, Thomas Djiwandono and Sudaryono, as deputy ministers in his cabinet, a move signaling his intention for a smooth handover.
According to experts, an outgoing government actively planning a state budget that caters to the programs of an incoming administration has never happened before during Indonesia’s democratic era.
The general precedent has been for an outgoing administration to formulate a loose draft budget that the next government could adjust to accommodate its programs, which is what happened during the final year of Susilo Bambang Yudhoyono’s presidency before Jokowi took the reins.
In any case, nothing prevents a new administration from revising a draft budget to fit the latest economic developments and accommodate its policy priorities.
The state budget is typically passed soon after a new government is formed, and any adjustments are normally made at the beginning of the fiscal year.
The government and the House of Representatives have set agreed ranges for key items in the 2025 draft budget, while the actual figures are published in the Financial Notes, the document that provides the basis for the State Budget Address that Jokowi will deliver on Aug. 17.
These figures are determined by the government and rarely stray from the previously agreed ranges. Once the Financial Notes is presented on Friday, the executive and legislative branches formally kick off the process of drafting the state budget bill, using the Financial Notes as guidance.
BCA chief economist David Sumual told The Jakarta Post on Aug. 8 that there was little chance the figures in the Financial Notes would veer much from the agreed ranges, as they were based on the latest developments.
David said the assumptions informing the current ranges were “logical”, such as GDP growth of between 5.1 and 5.5 percent.
He added that Indonesia could reach the upper end of this growth range next year but cautioned that exceeding this range would lead to “our economy overheating.” This was because the country did not have enough domestic savings to finance GDP growth beyond 5.5 percent, and attaining high growth would require massive foreign investment.
Further, David explained that Indonesia’s fiscal capacity had shrunk because the government was currently in a balancing act of paying high interest on its debt while keeping the deficit within the safe limit.
Asked whether the targets considered for the 2025 budget were attainable, Bank Permata chief economist Josua Pardede said it was “too soon to say”, since the detailed strategy had yet to be revealed.
“Right now, we can only say that those numbers [budget assumptions] are attainable if tax compliance is increased so the tax base can be expanded,” Josua told the Post on Aug. 8.
“With increasing state revenue, state spending can be bumped up without [expanding the deficit]. And when state spending is used for productive activities with a high multiplier effect, then we can see [if] those numbers [are] feasible enough,” he said.
He added that the programs and fiscal policies of the incoming administration would be the highlights of the Financial Notes to be presented on Friday.
Finance Minister Sri Mulyani Indrawati and other cabinet ministers are scheduled to elaborate on the document at a press conference after the presidential address.
Wijayanto Samirin, an economist at Paramadina University, told the Post last Thursday that the agreed ranges for the 2025 budget were “generally realistic”.
He said the state revenue range of 12.3-12.36 percent of GDP was “relatively conservative”, which he surmised was to anticipate the weakening tax income that was projected to play out in 2024.
Meanwhile, Wijayanto perceived as “overly aggressive” the rupiah exchange rate assumption of Rp 15,300 to Rp 15,900 per United States dollar.
This part was delicate, he warned, as a miscalculation in the rupiah rate could translate into a greater deficit. For example, if the rupiah turned out to be weaker than assumed, this would lead to higher costs for fuel imports that would in turn shoot up fuel subsidies, which was a big part of overall spending.
“The poverty level of 7 to 8 percent is also overly optimistic, given that the decline in the poverty rate was very slow in the past few years, and that the depth and intensity of our poverty are relatively high,” he noted.