Government struggles to cut deficit
Government struggles to cut deficit
The Jakarta Post, Jakarta
Soaring oil prices raising government spending on the fuel
subsidy, and coupled with the shortfall in a number of revenue
targets, has left the government under intense pressure to avoid
a wider-than-expected 2004 budget deficit.
As against a full-year target of Rp 26.3 trillion (some US$2.9
billion), or 1.3 percent of gross domestic product (GDP), the
budget deficit has already reached Rp 27.4 trillion as of Oct.
31, according to Minister of Finance Yusuf Anwar.
"That's about 1.4 percent of GDP," Yusuf said at a gathering
to break the fast over the weekend.
While the global oil price has forced the government to spend
more on the fuel subsidy, and the transfer of funds to regions
under the revenue-sharing mechanism, slow progress in various
revenue generating sources has made things even worse.
Under the revenue-sharing scheme, the central government has
to split revenue derived from natural resources -- notably oil
and gas -- with producing provinces and regencies. The revenue
allocation for these funds will go up in accordance with the
upward movement of the price of oil in the international market.
On the budget revenue front, the tax revenue target for
example, which makes up the lion's share of the state budget's
funding sources, has yet to fully pick up with only two months to
go before the budget year ends.
As of Oct. 31, the tax office had collected some 75 percent of
the full-year target, the ministry's Director General for
Taxation Hadi Purnomo said, with the remainder standing at some
Rp 61 trillion.
The tax office raked in Rp 178 trillion in the January to
October period, from a total target of Rp 238.5 trillion, said
Hadi.
A higher-than-expected budget deficit would make it difficult
for the government to fulfill its pledge to gradually reduce the
deficit and achieve zero-deficit by as early as 2006.
Such a prospect could undermine the financial market's
confidence in the economy. The 2004 deficit target was the lowest
in the past three years, following a deficit of 2.5 percent of
GDP in 2002 and 1.8 percent in 2003.
But more crucially, the higher deficit should spell extra
problems for the cash-strapped government, as it requires more
funds to cover it -- something the government is finding more and
more hard to do these days.
The government is already struggling to finance the initial
1.3 percent deficit target, which traditionally comes from both
internal and external sources.
With proceeds from the privatization of state companies
falling short of the target, the government has no choice but to
jack up revenue from its divestment program, with plans to sell
its remaining stakes in a number of recapitalized banks -- BCA,
Niaga, Permata, BII -- already high on the agenda.
If the government fails to provide the financing from domestic
sources, turning to foreign loans would be most likely. Based on
the 2004 budget, the government expects some Rp 21.7 trillion in
foreign loans for deficit financing.
Despite the concerns, Yusuf remained optimistic the deficit
target was still achievable. "We still have time. And I am still
convinced that we can achieve it."
Mulia Nasution, the ministry's Director General for State
Treasury, also shared the same optimism.
"Traditionally, in the last two months of the year, tax
revenue increases sharply, mostly from big companies that want to
close their yearly balance sheet," said Mulia.