Economist: Accelerated government spending helps maintain domestic demand
Government spending in the first quarter has become an important pillar of economic growth amid weak middle-class consumption and a slowdown in manufacturing.
Jakarta (ANTARA) - Head of the Macroeconomics and Finance Center at the Institute for Development of Economics and Finance (Indef), M Rizal Taufikurahman, said that the acceleration of government spending since the beginning of the year has helped maintain domestic demand.
Rizal, when contacted by ANTARA in Jakarta on Friday, said that social assistance spending, government projects, and priority programs were the main factors supporting domestic demand in the first quarter of 2024.
According to a report by the Central Statistics Agency (BPS), government spending grew by 21.81%. This component contributed 1.26% to the formation of gross domestic product (GDP) in the first quarter of 2024, which recorded a growth of 5.61%.
“Government spending in the first quarter has become an important pillar of economic growth amid weak middle-class consumption and a slowdown in manufacturing,” said Rizal.
However, he highlighted that the effectiveness of government spending is not yet optimal, given that most of it is still routine spending.
Meanwhile, the manufacturing PMI had fallen close to the stagnation zone, and people’s purchasing power still needs support.
“This means that fiscal policy is currently functioning more as a buffer against economic slowdown rather than a driver of new expansion,” said Rizal.
For the next quarter, Rizal believes that the impact of government spending will continue to support growth, but the room for acceleration is starting to be limited if the private sector has not fully recovered.
The strategy of front-loading the State Budget (APBN) is considered to have helped maintain growth in the first quarter above 5%, but its sustainability depends on the quality of spending.
“If spending only encourages short-term consumption without strengthening investment, industry, and job creation, then the multiplier effect will quickly weaken,” he explained.
Therefore, he recommends that the government broaden its focus from accelerating budget absorption to ensuring productive spending.
Government spending needs to be directed towards programs that have a high multiplier effect and are able to attract domestic investment.
This strategy is considered important to implement in order to maintain growth in the second half of the year and prevent it from moderating.