August 20, 2024
JAKARTA – The 2025 draft budget is here, and this will be president-elect Prabowo Subianto’s first.
The plan drawn up by President Joko “Jokowi” Widodo’s administration sticks to the safety bounds prescribed by our State Finances Law, which limits the fiscal deficit to no more than 3 percent of gross domestic product (GDP) and the overall accrued debt to 60 percent of GDP.
The draft presented on Friday proposes a deficit of 2.53 percent of GDP and a gross-debt-to-GDP ratio of just below 39 percent.
Meanwhile, for its economic assumptions that are part of the budget plan, the government projects economic growth of 5.2 percent in 2025, the same level set for this year – but a question mark hangs over this projection given the persisting global economic uncertainty.
The International Monetary Fund and the World Bank both forecast that Indonesia’s economy will only grow by 5.1 percent next year.
For this year, the two project GDP of only 5 percent, below the government’s 5.2 percent estimate.
Large parts of the proposed budget for next year remain uncertain as the plan fails to specify allocations for many budget posts. Some might find that concerning.
However, Finance Minister Sri Mulyani Indrawati has pointed out that this is a transitional budget, and that many aspects will have to wait for answers from those who will sit in the next administration, which will depend on what Prabowo wants to pursue.
Be that as it may, we should remind Prabowo that global uncertainty will persist at least until next year, and the country will need all the support it can get from the fiscal side to keep the wheels running for domestic economic activity even in the face of potentially weak demand for Indonesian export goods.
There are hopes of interest rate cuts, but it would not be enough to undo the pain caused over the past two years as the “higher for longer” monetary policy spearheaded by the United States Federal Reserve has left its mark.
We know that Prabowo may want to kickstart a lot of his campaign promises as soon as possible but we urge the president-elect to do what he must to safeguard the economy, before working down his own to-do list.
For those campaign promises apt to boost economic growth to compensate for external weakness, by all means, go ahead. The key is to calibrate budget policy in response to global and domestic developments by providing as much stimulus as is needed but not so much as to undermine fiscal prudence and stability.
Navigating next year would also prove tricky, given that Prabowo will inherit both blessings and curses from the current administration.
President Jokowi has left many tasks unfinished, such as a planned value-added tax (VAT) hike to 12 percent and an excise on plastics and sweetened beverages. Some of those initiatives can be instrumental in boosting revenue and keeping a lid on the deficit, but not without side effects.
Let alone much of the past spending with long-lasting impacts on the state budget, including the future capital city of Nusantara’s development and the deficit from the Jakarta-Bandung high-speed railway, Whoosh, among other projects.
Some of these tasks will present tough choices for Prabowo between pursuing his own priorities and following through on legacy projects. Each of those choices must be guided by an assessment of the national interest, and that alone.
For now, there is only so much President Jokowi can do in this transition period; the public will need to accept unsatisfactory answers provided by the incumbent administration on budget policies.
It remains to be seen whether the incoming administration can live up to its vows of fiscal prudence.
Next year will be the beginning for Prabowo, but only time will tell whether it will remain that way. The next administration would need to prove throughout its whole five-year term that such hard-fought prudence is something that the country can keep.