Indonesia’s 2017 Budget Seeks Cautious Economic Expansion

Abstract

At the start of his presidency, the then-newly elected President Joko ‘Jokowi’ Widodo promised to achieve seven percent annual growth within the next three years.1 Almost two years later, this target seems hard if not impossible to achieve amidst global economic uncertainties and a lacklustre domestic performance. The economy is now struggling to not fall below the five percent growth rate, a critical threshold for keeping Indonesia’s 130 million workers gainfully employed. In fact, a five percent growth rate is actually barely sufficient in supporting Indonesia’s ambition to eradicate extreme poverty. Around 11 percent of the total population are still living in poverty and mostly in rural areas.2 Moreover, Indonesia is suffering a huge income inequality. According to its Statistics Agency (BPS), the country’s Gini coefficient, an indicator of income distribution, has worsened in recent years.3 In order to boost short-term growth, Indonesia relies on public sector spending, which is mainly directed towards infrastructure and social assistance programmes. However, given weaker-than-expected revenues in recent years, there is a risk that the government’s fiscal capacity will be increasingly limited going forward.