Indonesia's budget deficit may widen to 1.3 percent of GDP

Indonesia's state budget deficit this year is likely to soar far above initial forecasts unless immediate measures are taken to contain surging spending on fuel subsidies amid high global oil prices and soaring fuel consumption at home, local media reported here Tuesday.

The Jakarta Post quoted Minister of Finance Jusuf Anwar as estimating on Monday that the deficit could jump to 1.3 percent of the gross domestic product (GDP), or about 35.2 trillion rupiahs ( about 36.2 billion US dollars), from projections of 0.8 percent of GDP, or 20.3 trillion rupiahs (about 21.3 billion US dollars).

"The government's cashflow is still manageable, but it will be hard in the future to maintain it following the soaring cost of the fuel subsidy," Jusuf said after meeting President Susilo Bambang Yudhoyono.

According to Jusuf, the 1.3 percent deficit was calculated based on the assumption that global oil prices stood at 60 US dollars a barrel throughout the year, oil output stayed less than 1.125 million barrels a day, and domestic fuel consumption remained high at 59.6 million kiloliters.

With these assumptions, the Ministry of Finance estimates that the costs of the fuel subsidies would rise to 123 trillion rupiahs (about 124 billion US dollars) for the year.

The 2005 state budget has allocated only 76.5 trillion rupiahs (about 77.5 billion US dollars) for the subsidies, assuming an average annual oil price of 45 US dollars a barrel, a rupiah-US dollar exchange rate of 9,300:1 and fuel consumption at 59.6 million kiloliters.

The government is scheduled to submit its second state budget revision to the House of Representatives in late August, with the main agenda likely to be seeking additional funds for fuel subsidy spending.

Analysts say by carrying the cost of the subsidy the government is putting at risk the country's fiscal stability and the economy as a whole.

They fear that the country's currently stable macro-economy will be severely impacted by the widening deficit, which will reduce the government's ability to provide funds for social and economic emergencies and to service its massive debts to foreign creditors.

A widening deficit also puts confidence in the country's economy at risk, jeopardizing the already slumping rupiah and triggering inflationary pressure and higher interest rates -- all things that can put the brakes on economic growth.

Jusuf said the Ministry of Finance and several economic analysts were currently working to find effective ways to ease the deficit problem, including a further review of the fuel subsidy system.

Source: Xinhua