The approval of Indonesia’s 2024 budget by the national legislature provides valuable insights into the country’s fiscal and economic landscape. Several key takeaways can be drawn from this budgetary framework.
First, tax reform has been a recurring theme in Indonesia’s fiscal policy. Over the past few years, the Ministry of Finance has intensified efforts to improve tax collection. Notably, the consumption tax was raised from 10 percent to 11 percent in 2022. The results have been impressive, with tax revenue increasing from $99 billion in 2019 to a projected $136 billion in 2023, exceeding initial forecasts by $6 billion. This additional revenue is helping to reduce the budget deficit from an anticipated 2.84 percent of GDP to just 2.3 percent in 2023. The 2024 budget assumes a further 9 percent increase in tax receipts, reaching a total revenue of $178 billion.
The second takeaway pertains to macroeconomic indicators and assumptions. Budget planners expect the Indonesian economy to grow by 5 percent in 2024, with inflation below 3 percent and the exchange rate at approximately 15,000 rupiah to the dollar. These assumptions are considered reasonable, and with a stable macroeconomic environment and increased revenue, total public spending is set to rise by nearly 6 percent compared to 2023, reaching around $212 billion.
The third key point relates to government spending. Despite Indonesia’s ambitious spending plans, which encompass funding for a new capital city, major military acquisitions, and significant infrastructure projects like the Jakarta-Bandung High-Speed Rail, the budget indicates that the country can afford these endeavors. While the government did incur significant debt during the pandemic, the fiscal and balance of payment crises that arise from cash shortages appear low risk in Indonesia’s current fiscal condition. The budget highlights a shrinking deficit even as spending increases, a growing economy, substantial foreign exchange reserves, and moderate inflation, all contributing to a stable fiscal outlook.
The overall message from the 2024 budget is that Indonesia’s fiscal position and macroeconomic environment are stable, with revenue from the domestic tax base on the rise. This suggests that the Indonesian government can expand spending without accumulating excessive debt. However, the key question moving forward is whether this increased spending is allocated wisely, a complex matter that will require further evaluation in the coming months and years, especially given the impending change in political leadership.
