Indonesia’s proposed budget treads COVID recovery tightrope

September 17, 2021

SINGAPORE -- Indonesia's proposed 2022 budget deficit of 4.85% of GDP reflects continuing fiscal strain from combatting COVID-19.

Ratings agency Standard and Poors says the planned shortfall is materially higher than Indonesia's pre-pandemic deficits, potentially driving elements of its fiscal position toward levels that could trigger a negative change in its sovereign credit ratings (BBB/Negative/A-2).

However, Indonesia's external metrics have improved recently on the back of strong export growth, and a continuation of this trend would partly offset the fiscal pressures on the ratings, S&P says. "The outlook on our long-term sovereign credit rating on Indonesia remains negative."

S&P Global Ratings believes Indonesia's deficit next year could be lower than that proposed by President Joko Widodo in his August 16 budget speech. S&P has forecast 2022 real GDP growth at a stronger 5.6%, compared with the Government's projection of 5.0%-5.5%.

"With sturdier economic growth momentum next year, revenue receipts may be higher, compared with realised expenditures. We retain our forecast for a deficit equivalent to 4.2% of GDP in 2022, following a higher shortfall this year of 6.0% compared with the Government's updated guidance of 5.8% in 2021. (ATI).