Indonesia should review its subsidy bill and use the savings to boost the country’s infrastructure, President Susilo Bambang Yudhoyono said as he urged for fiscal prudence.
Southeast Asia’s largest economy needs to increase investments as exports falter and use its fiscal policy to drive growth, Yudhoyono said in a speech to lawmakers in Jakarta today before his annual state budget address this evening. The ratio of the country’s budget deficit to gross domestic product must be kept at a “safe level,” he said.
Yudhoyono, re-elected in 2009 for a second five-year term, is increasing spending on roads, seaports and airports to help deliver annual growth of at least 6.6 percent by the end of 2014. He has won upgrades from Fitch Ratings and Moody’s Investors Services that brought Indonesia to investment grade as he pledged to allocate resources to infrastructure, contain the budget deficit and fight corruption to spur the economy.
“We need to support national efforts to accelerate infrastructure development to ensure sustainable growth,” Yudhoyono said. “The greatest challenge in infrastructure development nowadays is the high infrastructure need in all regions in Indonesia while funds in the state budget are relatively limited. Even since we have increased our capital and infrastructure development budget in the past years, our state budget fund is still limited.”
The nation celebrates its 67th independence day tomorrow. The government predicts a 2013 budget deficit of 1.6 percent to 1.7 percent of GDP, Finance Minister Agus Martowardojo said Aug. 14. Yudhoyono may release more precise figures later today. The government projects a 2.23 percent deficit for 2012, after lawmakers in March rejected a proposal to increase the cost of subsidized fuel.
“I need to emphasize the need for us to have a healthy fiscal policy,” Yudhoyono told parliament. “Amid uncertainties in the global economic environment, we are more challenged to maintain our fiscal health. Efforts to improve the quality of government spending need to be continued.”
The nation’s current account deficit was $6.9 billion in the three months through June, from a $3.2 billion shortfall the previous quarter, Bank Indonesia said this month. The overall balance of payments deficit was $2.8 billion in the second quarter, it said. Bank Indonesia expects the current account deficit to narrow to 2 percent of GDP in the second half and expects balance of payments to return to surplus in the same period, it said.