Indonesia must look for new growth sources: 2023 state budget designed to be flexible
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.
Investor Daily - Indonesia harus mencari sumber pertumbuhan baru: APBN 2023 dirancang fleksibel
9 January 2023
By: Primus Dorimulu, Triyan Pangastuti, and Arnoldus Kristianus
Jakarta, ID – The 2023 state budget (APBN) is designed to be flexible with conservative revenue. This is implemented to anticipate global uncertainty, especially the decline in commodity prices. The revenue surge in the 2022 APBN was boosted by the increase in commodity prices, especially coal and CPO. Meanwhile, in 2023, commodity prices are predicted to go down along with weakening global economy.
“The APBN must be stable so that it does not become a source of uncertainty for others,” Finance Minister Sri Mulyani Indrawati said during a discussion with editorial leaders in Jakarta on Friday (6/1/2023). Accompanied by Finance Deputy Minister Suahasil Nazara, the Finance Minister explained that global economic uncertainty was similar to the situation explained by International Monetary Fund (IMF) Managing Director Kristalina Georgieva in New Delhi on Sunday (1/1/2023). According to Kristalina, the contraction of the three global economic superpowers – the US, China, and European Union – will push a third of the global economy into recession.
The discussion was held after the awarding event, 2022 Nagara Dana Rakca Media Appreciation, that was also conducted by the Finance Minister. At the first awarding event held by the Finance Ministry, Investor Daily placed first in the Printed Media category. Meanwhile, the second and third places were awarded for Kontan and Bisnis Indonesia. Besides that, Investor Daily journalist Triyan Pangastuti placed first in the Journalistic Writing category.
Entering 2023, Indonesia holds sufficient capital in the form of APBN that is healthy and designed to be flexible to adapt to changes. Since 2021, APBN performance has been continuously improving with deficit continuing to decrease significantly. It surged to 6.14% in 2020, but APBN deficit decreased to 4.57% in 2021. For the 2022 APBN, budget deficit was successfully supressed to Rp464.3 trillion or 2.38% of the gross domestic product (GDP). Fiscal deficit is far lower than the initial forecast, 4.85% of the GDP. Financing for the 2022 APBN can be decreased to only Rp585.5 trillion.
The Finance Minister said that, to face global uncertainty and the economic contraction that hit the three global economic superpowers, Indonesia must look for other regions to be new export destinations and growth sources. For example, exports to India must be increased. The economy of the country that currently holds G20 presidency is growing more than 6%. Until now, India has been importing coal and CPO from Indonesia.
Besides improving purchasing power, the government is also aggressively attracting investments by improving various regulations and services. Government Regulation in Lieu of Law No. 2/2022 on Job Creation that replaces Law No. 11/2022 on Job Creation is the government’s effort to spark confidence in investors.
“Investments will be made if there is confidence. Confidence will be achieved if the government can be trusted. The government is trusted if the APBN is credible,” the Finance Minister revealed. The Finance Minister has been clear and firm about the APBN becoming an anchor that must be trustworthy and reliable. The APBN must inspire confidence in economic players so that they will invest.
Similar to a sailing ship, Sri Mulyani said that ocean tide and coral reefs could not be avoided. However, the large ship called Indonesia’s economy must continue to sail, and the captain must be able to control the ship until it arrives at its destination safely. Even though dark clouds are still far, various aspects must be prepared. The Finance Ministry as the fiscal authority must provide a reminder. “That is our task. Do not be surprised if we send a ‘love letter’,” the Finance Minister said.
If revenue is worried to be below target, the Finance Ministry will send a letter to ministries and institutions as well as regional governments so that they will be more focused. Expenditure is focused for urgent posts. During the pandemic, the central government and regional governments were asked to refocus their budget. Since early January 2023, the Finance Ministry has sent automatic adjustment notices to ministries and institutions as well as regional governments so that their spending will be more selective and in line with the priority.
“A global economic crisis is straight ahead. We cannot look for an umbrella when it is already raining,” the Finance Minister said. If something unwanted happens, Indonesia will already have a cushion. The APBN acts as a shock absorber when the economy experiences a turbulence.
2023 is a political year. House of Representatives (DPR) members, who are the government’s partners in preparing and revising the APBN, will be more focused on the election. The APBN is a law, so its revision must be approved by the council.
Facing global economic contraction, the Deputy Finance Minister said that Indonesia must strengthen new growth sources, such as downstreaming and industrialisation. Then, the spending of ministries, institutions, the central government, and regional governments must prioritise domestic products to increase local content rate (TKDN). Next, green economy, environmental, social and governance (ESG), as well as new and renewable energy (NRE) utilisation must be developed to achieve net zero emission by 2060. Then, digitalisation in various sectors and business sectors as well as deep dive in the financial sector.
Conservative
State revenue in the 2023 APBN is set to reach Rp2,463.0 trillion. This amount is lower than revenue realisation in the 2022 APBN that reached Rp2,626.4 trillion or 115.9% of the target. Tax revenue realisation in 2022 reached Rp2,034.5 trillion or 114% of the target, which is slightly higher than the tax revenue target for 2023 that reaches Rp1,718 trillion that is only slightly higher than tax revenue realisation in the 2022 APBN that reached Rp1,716.8 trillion.
Non-tax state revenue (PNBP) in the 2023 APBN reaches Rp441.4 trillion. It is under the 2022 PNBP realisation that reached Rp588.3 trillion that surpassed 22.2% of the target. The increase in tax revenue and PNBP in 2022 was caused by the surge in commodity prices. Coal price increased significantly in 2022, and it is difficult to be replicated. Commodity prices, such as crude oil and metals, slightly decreased in the 2023 forward market.
“The 2023 APBN is designed to be flexible due to global uncertainty,” the Finance Minister said. The tax revenue target in 2023 is higher than the tax revenue realisation in 2022. However, the non-tax state revenue target in 2023 is intentionally set lower than the non-tax state revenue realisation in 2022.
The 2023 APBN expenditure is allocated Rp3,061.2 trillion, which is lower than the 2022 APBN expenditure realisation that reached Rp3,090.8 trillion. With this expenditure budget, the current-year APBN is not expansive. However, the government is taking advantage of the optimum budget to drive the economy as well as to improve purchasing power by providing social security funds.
This year, the government is preparing a social security budget of Rp476.05 trillion, which is 15.6% of the total 2023 APBN expenditure. The 2023 social security budget is higher than the 2022 social security realisation that reached Rp461.6 trillion. This social security budget will be directed to reduce poverty and other vulnerabilities.
Besides that, the 2023 APBN is also preparing a village fund of Rp70 trillion, which is slightly higher than the realisation in 2022 that reached Rp67.9 trillion. The village fund allocation will be redesigned by considering village performance, total villages, total population, poverty rate, area size, and geographic difficulty level.
In response to the public’s criticism on Law No. 7/2021 on Harmonisation of Taxation Regulations and Government Regulation No. 74/2011 on Procedure for Implementation of Rights and Fulfilment of Obligations of Taxations, they must be revised to provide legal certainty, convenience, and clarity for the people to understand the conditions for exercising their rights and fulfilling tax obligations,” Sri Mulyani said.
