SG News (Straits Times)

Indonesia slashes growth forecast by more than half

By July 1, 2020 No Comments

JAKARTA • Indonesia slashed its growth forecast by more than half as the coronavirus pandemic takes a toll on South-east Asia’s biggest economy, prompting the government to adopt a series of emergency measures.

The economy is now projected to grow 2.3 per cent this year, compared with an initial estimate of 5.3 per cent, Finance Minister Sri Mulyani Indrawati said yesterday. Under a worst-case scenario, the economy could contract 0.4 per cent, she said.

Indonesia is scrapping fiscal limits as it ramps up its response to the virus outbreak. President Joko Widodo on Tuesday took a number of emergency measures, including cutting corporate taxes, temporarily removing the budget deficit cap and allocating 405 trillion rupiah (S$35 billion) to fight the pandemic.

The new growth forecast is part of sweeping revisions to previous budget estimates announced by the Finance Minister yesterday:

 • Fiscal deficit to widen to at least 5.07 per cent of gross domestic product (GDP) this year from an original target of 1.76 per cent;

 • Debt-to-GDP ratio to remain at about 60 per cent;

 • Revenue to decline by 10 per cent;

 • Annual inflation projected in the range of 3.9 to 5.1 per cent, compared with a previous estimate of 3.1 per cent.

The rupiah, already down almost 13 per cent in the past month, may tumble to as low as 17,500 per US dollar. Under the worst-case scenario, it may plunge to 20,000.

Ms Indrawati said the spread of the coronavirus had created a humanitarian and financial crisis that has led to high volatility and global panic. “We must improve our response,” she said, adding that the authorities think the outbreak in Indonesia may peak as early as this month.

Like many other countries, Indonesia is confronting a crisis on two fronts, with a spike in Covid-19 virus cases stretching the healthcare system to near-breaking point and the economy rapidly deteriorating.

The budget deficit cap of 3 per cent of GDP, introduced in 2003 in the wake of the Asian financial crisis, will be removed immediately, allowing the government to significantly ramp up its stimulus. The government will revert to the 3 per cent cap in 2023.

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