Budget Deficit Likely to Soar

TEMPO.CO, Jakarta - A number of analysts projected tougher economic challenges this year with the risk of soaring budget deficit due to the absence of concrete government measures to boost revenue or cut spending.

"According to my calculations, the deficit could rise in the range of 2.7 to 3.5 percent of gross domestic product (GDP) this year," economist Anton Gunawan told Tempo yesterday. This, he said, is mainly based on the projection that the crude oil lifting assumption will fall below the target set in the State Budget 2014.

Of the lifting assumption of 870,000 bpd, it is estimated that only about 820,000 bpd can be produced. This will result in a deficit of around Rp25 trillion, said Anton.

Meanwhile, subsidized fuel consumption is predicted to continue to rise, exceeding the quota of 48 million kiloliters set by the government. The increasing amount of fuel subsidy expenditure is due to the lack of firm policies in restricting fuel consumption.

Anton said fiscal conditions will even be more severe as tax revenues—the largest source of state revenue—will be sluggish this year. In addition, there are always differences in the actual income tax revenue target per year, due to predictions that this year's significant commodity price declines will affect the performances of companies that are major tax contributor.

A similar sentiment was expressed by Citi Research's Asia-Pacific market and economic analyst, Helmi Arman. Helmi predicted that the budget deficit will exceed the 1.69-percent-of-GDP target, because of ballooning subsidies caused by the rupiah depreciation.

"For subsidy expenditure, we estimate it could reach Rp300 trillion from the state budget of Rp210 trillion," said Helmi.

According to Helmi, the government must take immediate actions to lower the deficit, for example by raising fuel prices. According to his calculation, if the current fuel price is raised, it will not affect the rate of inflation. If the government decides not to raise fuel prices, they could opt for cutting ministries and agencies' budgets.

Finance Minister Chatib Basri said he has not calculated the potential budget deficit if there is no improvement in oil production, tax revenues as well as subsidized fuel restrictions. He repeatedly said that the government will keep the deficit below 2.5 percent of GDP.

Chatib said the government is still focusing on stabilizing the exchange rate, as it has a huge effect on subsidy expenditures. "The next thing we focus on is oil lifting oil as it affects the structure of the state budget," he said.

RR ARIYANI | ANGGA SUKMA W