Fiscal spending delay to drag on Indonesian economic growth in 2016

Indonesia's growth pace was disappointing in 2015, partially because of poor budget that was drag on the economy in the beginning of the year. There is a possibility that this might repeat in 2016 if the government continues with its current budget plans.

The 2016 budget assumes a rise of 25% in tax revenues that seems to be too positive. In 2015, the Indonesian government had set up a similar target of 30%, but finished at around 20% off the tax target by the end of the year. Furthermore, when the government had to trim its expenditure, capex took the major chunk of the brunt.

If the government was serious about stimulating growth, the savings should have come from operational expenditure that has a lower multiplier effect.  A revision to the 2016 budget is coming up. It is expected that there will be a longer delay in 2016 as the government will have to wait for an approval from the parliament for the new tax amnesty law.

While a lot of focus has been put on monetary policy, fiscal policy can play a more important role in expanding growth at this juncture. One major worry from the macro risk profile is the government's continuous verbal intervention in the central bank's policy stance.