2023 State Budget prospect: An old story with the State Budget
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Prospek APBN 2023: Cerita lama anggaran negara
30 January 2023
By: Tegar Arief
The economy this year is going back to normal as the pandemic has been handled, inflation is under control, and economic expectations are increasing. The state’s fiscal condition is also going back to normal. Unfortunately, it is not something to be proud of.
After achieving the double-digit tax ratio last year, tax performance is now estimated to reach 9%.
At the same time, debt ratio is expected to surpass last year’s to reach 4.06% of the gross domestic product (GDP), referring to Presidential Regulation No. 134/2022 on Updating of Government Work Plan of 2023.
This contradiction between the tax ratio and the debt ratio pushes the state budget (APBN) to go back to normal to the level before the pandemic even though the government is struggling to balance them.
More often than not, policy makers and budget observers emphasise that the tax revenue prospect in 2023 will be darker compared to the last 2 years.
Besides the sluggish price of commodities, the lack of a sustainable momentum from the voluntary disclosure program (PPS) and the increase in value-added tax (VAT) is the cause.
In terms of debt, the lack of tax revenue could increase state loans if expenditure increased outside of the APBN’s scenario.
Moreover, the reference interest rate continues to increase, which increases the cost spent by the state to pay interest. This is what makes fiscal authority movement more difficult.
Centre of Reform on Economics (Core) Indonesia Economist Yusuf Rendy Manilet said that foreign currency debt value could be affected by the rupiah weakening, which is accelerated by the capital outflow from the increase in the reference interest rate of major countries.
“As well as the increase in returns from the change in the reference interest rates,” he said to Bisnis last week.
In the context of debt control, policy synergy between the fiscal authority and the monetary authority is required. Fiscal revenue must be boosted, accompanied by rupiah intervention by the monetary authority.
The problem is that 2023 is the year for the government to prove themselves to realise consolidation or fiscal normalisation, which will mainly decrease the deficit rate to 3% of the GDP.
That mission can be accomplished if the economy did not take a strong hit from inflation. This risk demands the government to prepare a backup scenario, especially in terms of expenditure.
However, it is not easy to do the mission. On the one hand, the APBN must be recovered, but, on the other hand, expenditure must be increased to maintain purchasing power.
The International Monetary Fund (IMF) in Regional Economic Outlook Asia and Pacific October 2022 logged that Indonesia was one of the countries that must be ready to face fiscal challenges.
According to the IMF, economic challenges will push the governments of many countries, including Indonesia, to increase their expenditure.
Unfortunately, the budget foundation is not solid enough. The IMF estimates that the tax ratio in Indonesia will remain low.
Meanwhile, the fiscal burden borne by the country during the Covid-19 pandemic boosted debt interest to central government expenditure ratio towards the highest level.
The same goes for debt interest to state revenue ratio that is continuously developing.
Based on Bisnis’ calculation, debt interest expenditure to central government expenditure ratio in 2023 will reach 19.64%, which will be the highest in the last 7 years.
That number assumes that debt interest payment reaches Rp441.4 trillion and central government expenditure reaches Rp2,246.45 trillion.
The increase in debt interest to central government expenditure ratio increases the risk of economic slow down as there is potential for a budget cut for productive expenditure.
Similarly, debt interest to state revenue ratio in 2023 reaches 17.92% with state revenue assumed at Rp2,463 trillion. That amount is the highest in the last 3 years. Debt interest to state revenue ratio reached the highest level in 2020 at 19.22%.
That condition indicates that the state revenue’s capacity in funding debt interest payment from year to year continues to decline.
“The government needs to focus on expanding the tax base through extensification and intensification,” Pratama Kreston Tax Research Institute Executive Director Prianto Budi Saptono said.
Even though various institutions estimate that the global recession in 2023 will be friendlier compared to previous forecasts, recession is still recession. That slowdown will affect tax performance.
“There are some parts of the revenue, including tax, in 2022 that is difficult to be replicated in 2023,” Fiscal Policies Board Analyst of the Finance Ministry Rahadian Zulfadin said.
Reflecting on that condition, economic normalisation will most likely be followed by state budget normalisation.
In order for the fiscal normalcy to be more positive, the government must work extra hard so that state revenue can meet all of the required financing, including debts.
