Oil boosts revenue
Oil boosts revenue
It might be exaggerating to say that the current state budget
(1996/1997) has been saved by the 16 percent increase in
international oil prices. But the first-half (April to September)
implementation of the budget, as reported by Minister of Finance
Mar'ie Muhammad, did indicate that actual budget revenue would
have been much lower, had it not been for the significant
increase in oil tax receipts.
As Mar'ie reported to the House of Representatives on
Wednesday, tax receipts from the oil and natural gas sector
during the first half totaled Rp 8.3 trillion (US$3.5 billion),
or almost 60 percent of the target set for the whole fiscal year.
Meanwhile, tax revenues from other sectors reached only 43.6
percent of the target. The other sources of revenue were even
worse, with non-tax receipts (mainly profits from state companies
and service fees) achieving less than 25 percent of their target
and revenue from foreign loans hitting only 34.8 percent of the
target.
Even though the $2.65 increase in the price of oil to an
average $19.15/barrel during the first half also forced the
government to spend Rp 358.5 billion for domestic fuel subsidies
instead of gaining Rp 827.8 billion in fuel sale profits as
envisaged in the budget, the bottom line was still positive.
Every $1 increase in the crude oil price above the price
envisaged in the budget generates an estimated $600 million in
additional revenue for the government. If the government's
spending on fuel subsidies is deducted from this amount, the net
additional revenue from every $1 rise in crude oil prices is
estimated at $300 million.
The budget performance, however, was nowhere near as worrying
as the position of the external balance, whereby the overall
balance of payments, for the first time in over a decade,
degenerated into a deficit of $200 million. The overall balance
used to be made positive by the capital account surplus. However,
because the current account deficit (balance of trade in
commodities and services) in the first half rose by 14.5 percent
to $4.5 billion -- due partly to the deficit in the non-oil trade
balance -- the capital flows, though also increasing
substantially, could not offset the deficit. The trend has been
all the more worrisome because the non-oil trade balance, which
posted a surplus between the 1992/1993 and 1994/1995 fiscal
years, became a deficit in 1995/1996 due to the slackening growth
of exports. No wonder the ratio of foreign debt servicing to
total export earnings almost reached 35 percent, which Mar'ie
himself viewed as alarming.
Even the rise in capital flows, though helpful, is not an
entirely welcomed development, especially from the perspective of
monetary management. The capital account ended with a net surplus
of $4.3 billion only because of $4.7 billion in net private
capital flows, because official capital flows actually posted a
deficit of $400 million. But only $2.4 billion of the net private
capital flows consisted of direct investments, while the
remaining $2.3 billion was made up mostly of portfolio, short-
term capital. That makes the country vulnerable to the volatile
financial market because the portfolio capital is highly
sensitive to noneconomic factors, such as rumors. But given the
huge current account deficit, even the speculative capital still
contributed to preventing the overall balance of payments deficit
from reaching an alarming point.
The central bank has nonetheless tried to curb the inflows of
short-term speculative capital because that kind of capital makes
monetary management increasingly difficult. Bank Indonesia, for
example, widened the rupiah exchange band against the American
dollar to 8 percent last September to discourage currency
speculation.
The clearest and strongest message conveyed by the worsening
external balance position is that it now becomes much more
imperative than ever to further improve the climate for
investment activities and to bolster the growth of exports. The
situation has not yet reached a critical point, but further heavy
reliance on short-term capital flows makes the country's balance
of payments even more vulnerable.